UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-03732
MFS VARIABLE INSURANCE TRUST II
(Exact name of registrant as specified in charter)
111 Huntington Avenue, Boston, Massachusetts 02199 (Address of principal executive offices) (Zip code)
Christopher R. Bohane
Massachusetts Financial Services Company
111Huntington Avenue Boston, Massachusetts 02199
(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
Date of fiscal year end: December 31
Date of reporting period: December 31, 2023
ITEM 1. REPORTS TO STOCKHOLDERS.
Item 1(a):
Annual Report
December 31, 2023
MFS® Blended Research®
Core Equity Portfolio
MFS® Variable Insurance Trust II
MFS® Blended Research® Core Equity Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Blended Research Core Equity Portfolio
Top ten holdings
| Microsoft Corp. | 7.5% |
| Apple, Inc. | 6.7% |
| Amazon.com, Inc. | 3.9% |
| NVIDIA Corp. | 3.8% |
| Alphabet, Inc., “C” | 2.7% |
| Alphabet, Inc., “A” | 2.5% |
| Johnson & Johnson | 2.1% |
| Meta Platforms, Inc., “A” | 2.1% |
| Adobe Systems, Inc. | 2.1% |
| JPMorgan Chase & Co. | 2.0% |
GICS equity sectors (g)
| Information Technology | 28.5% |
| Financials | 13.6% |
| Health Care | 13.4% |
| Consumer Discretionary | 10.2% |
| Communication Services | 8.6% |
| Industrials | 7.7% |
| Consumer Staples | 6.6% |
| Energy | 3.8% |
| Utilities | 3.2% |
| Real Estate | 1.9% |
| Materials | 1.7% |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2023.
The portfolio is actively managed and current holdings may be different.
MFS Blended Research Core Equity Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2023, Initial Class shares of the MFS Blended Research Core Equity Portfolio (fund) provided a total return of 28.53%, while Service Class shares of the fund provided a total return of 28.20%. These compare with a return of 26.29% over the same period for the fund's benchmark, the Standard & Poor’s 500 Stock Index (S&P 500 Index).
Market Environment
During the reporting period, central banks around the world had to combat the strongest inflationary pressures in four decades, fueled by the global fiscal response to the pandemic, disrupted supply chains and the dislocations to energy markets stemming from the war in Ukraine. Interest rates rose substantially, but the effects of a tighter monetary policy may not have been fully experienced yet, given that monetary policy works with long and variable lags. Strains resulting from the abrupt tightening of monetary policy began to affect some parts of the economy, most acutely among small and regional US banks, which suffered from deposit flight as depositors sought higher yields on their savings. Additionally, activity in the US housing sector has slowed as a result of higher mortgage rates. China’s abandonment of its Zero-COVID policy ushered in a brief uptick in economic activity in the world’s second-largest economy in early 2023, although its momentum soon stalled as the focus turned to the country’s highly indebted property development sector. In developed markets, consumer demand for services remained stronger than the demand for goods.
Early on, policymakers found themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, central banks focused on controlling price pressures while also confronting increasing financial stability concerns. Central banks had to juggle achieving their inflation mandates while using macroprudential tools (financial policies aimed at safeguarding the stability of the financial system) to keep banking systems liquid, a potentially difficult balancing act, and one that suggested that we may be nearing a peak in policy rates. As inflationary pressures eased toward the end of the period, financial conditions loosened in anticipation of easier monetary policy, boosting the market’s appetite for risk. Rapid advancements in artificial intelligence were a focus for investors.
Normalizing supply chains, low levels of unemployment across developed markets and signs that inflation levels have peaked were supportive factors for the macroeconomic backdrop.
Contributors to Performance
Relative to the S&P 500 Index, stock selection and an underweight position in the energy sector benefited the fund’s performance. Within this sector, not owning shares of poor-performing integrated energy company Chevron, and an underweight position in integrated oil and gas company ExxonMobil, helped relative returns. The share price of Chevron declined as the company reported revenue that missed expectations due to lower margins in its downstream operations, higher-than-forecasted capital expenditures, and costs related to the acquisition of Hess.
Security selection within the utilities sector also aided relative results led by the fund’s holdings of electricity provider Vistra(b). The share price of Vistra climbed as the company posted impressive earnings, raised growth guidance, and benefited from favorable demand and weather conditions.
The combination of stock selection and an underweight position in the industrials sector strengthened relative performance. Here, the timing of the fund’s position in building materials supplier and manufacturer Builders FirstSource benefited relative results. The share price of Builders FirstSource advanced as the company announced strong organic growth and impressive margins due to moderating commodity prices and robust consumer demand.
Elsewhere, the fund’s overweight positions in online travel company Booking Holdings, software company Adobe Systems, semiconductor company Lam Research, semiconductor chips and electronics engineering solutions provider Applied Materials, and technology company Alphabet were among the fund’s top relative contributors. Adobe’s share price benefited from financial performance that beat market estimates due to better-than-expected revenue growth coupled with higher operating margins. Results were further bolstered through the implementation of generative AI (artificial intelligence) in Photoshop and the implications of its broader use within the company. The timing of the fund’s ownership in shares of network security solutions company Palo Alto Networks further supported relative results.
Detractors from Performance
During the reporting period, security selection within both the information technology and communication services sectors held back relative performance. Within the information technology sector, an underweight position in strong-performing computer graphics processor maker NVIDIA, and the timing of the fund’s position in broadband communications and networking services company Broadcom, weighed on relative results. The stock price of NVIDIA advanced as the company reported earnings per share results well above expectations, primarily driven by stronger-than-expected revenue growth within its data center, generative AI, and networking
MFS Blended Research Core Equity Portfolio
Management Review - continued
segments. Revenue and earnings-per-share guidance were significantly above expectations, driven by continued robust demand related to generative AI. Within the communication services sector, there were no individual stocks, either in the fund or in the benchmark, that were among the fund's top relative detractors over the reporting period.
Stocks in other sectors that hindered relative performance included the fund’s overweight positions in oilseeds, corn, and wheat processor Archer Daniels Midland, global health services provider Cigna, insurance company MetLife, diversified medical products maker Johnson & Johnson, office and consumer paper products maker Kimberly-Clark, pharmaceutical company Merck, and biotechnology company Biogen. Additionally, the fund’s underweight position in electric vehicle manufacturer Tesla, which outperformed the benchmark, further detracted from relative returns.
Respectfully,
Portfolio Manager(s)
Jim Fallon, Matt Krummell, Jonathan Sage, and Jed Stocks
| (b) | Security is not a benchmark constituent. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Blended Research Core Equity Portfolio
Performance Summary Through 12/31/23
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/23
Average annual with sales charge
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 11/14/1986 | 28.53% | 15.81% | 11.10% |
| Service Class | 8/24/2001 | 28.20% | 15.53% | 10.82% |
Comparative benchmark(s)
| Standard & Poor's 500 Stock Index (f) | 26.29% | 15.69% | 12.03% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Standard & Poor's 500 Stock Index(g) – a market capitalization-weighted index of 500 widely held equity securities, designed to measure broad U.S. equity performance.
It is not possible to invest directly in an index.
| (g) | “Standard & Poor's®” and “S&P®” are registered trademarks of Standard & Poor's Financial Services LLC (“S&P”) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and have been licensed for use by S&P Dow Jones Indices LLC and sublicensed for certain purposes by MFS. The S&P 500® is a product of S&P Dow Jones Indices LLC, and has been licensed for use by MFS. MFS's product(s) is not sponsored, endorsed, sold, or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or their respective affiliates, and neither S&P Dow Jones Indices LLC, Dow Jones, S&P, nor their respective affiliates make any representation regarding the advisability of investing in such product(s). |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
MFS Blended Research Core Equity Portfolio
Performance Summary – continued
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Blended Research Core Equity Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2023 through December 31, 2023
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2023 through December 31, 2023.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/23 | Ending
Account Value
12/31/23 | Expenses
Paid During
Period (p)
7/01/23-12/31/23 |
| Initial Class | Actual | 0.42% | $1,000.00 | $1,092.44 | $2.22 |
| Hypothetical (h) | 0.42% | $1,000.00 | $1,023.09 | $2.14 |
| Service Class | Actual | 0.67% | $1,000.00 | $1,091.15 | $3.53 |
| Hypothetical (h) | 0.67% | $1,000.00 | $1,021.83 | $3.41 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS Blended Research Core Equity Portfolio
Portfolio of Investments − 12/31/23
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 99.2% |
| Aerospace & Defense – 1.4% | |
| General Dynamics Corp. | | 19,320 | $ 5,016,824 |
| Honeywell International, Inc. | | 2,967 | 622,210 |
| | | | | $5,639,034 |
| Airlines – 0.4% | |
| United Airlines Holdings, Inc. (a) | | 33,896 | $ 1,398,549 |
| Apparel Manufacturers – 0.3% | |
| Deckers Outdoor Corp. (a) | | 901 | $ 602,255 |
| Skechers USA, Inc., “A” (a) | | 10,946 | 682,374 |
| | | | | $1,284,629 |
| Automotive – 1.0% | |
| Aptiv PLC (a) | | 12,831 | $ 1,151,198 |
| Tesla, Inc. (a) | | 10,963 | 2,724,086 |
| | | | | $3,875,284 |
| Biotechnology – 0.8% | |
| Biogen, Inc. (a) | | 12,809 | $ 3,314,585 |
| Broadcasting – 1.1% | |
| Netflix, Inc. (a) | | 864 | $ 420,664 |
| Omnicom Group, Inc. | | 45,059 | 3,898,054 |
| | | | | $4,318,718 |
| Brokerage & Asset Managers – 1.7% | |
| Apollo Global Management, Inc. | | 4,227 | $ 393,914 |
| Bank of New York Mellon Corp. | | 110,260 | 5,739,033 |
| TPG, Inc. | | 14,327 | 618,497 |
| | | | | $6,751,444 |
| Business Services – 2.0% | |
| Accenture PLC, “A” | | 4,777 | $ 1,676,297 |
| Fiserv, Inc. (a) | | 9,021 | 1,198,350 |
| Verisk Analytics, Inc., “A” | | 19,886 | 4,749,970 |
| WEX, Inc. (a) | | 1,815 | 353,108 |
| | | | | $7,977,725 |
| Chemicals – 0.1% | |
| PPG Industries, Inc. | | 2,637 | $ 394,363 |
| Computer Software – 12.0% | |
| Adobe Systems, Inc. (a) | | 13,766 | $ 8,212,796 |
| Autodesk, Inc. (a) | | 2,637 | 642,057 |
| Microsoft Corp. | | 78,432 | 29,493,569 |
| Palo Alto Networks, Inc. (a) | | 19,849 | 5,853,073 |
| Salesforce, Inc. (a) | | 9,921 | 2,610,612 |
| | | | | $46,812,107 |
| Computer Software - Systems – 6.7% | |
| Apple, Inc. | | 135,430 | $ 26,074,338 |
MFS Blended Research Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Consumer Products – 1.7% | |
| Colgate-Palmolive Co. | | 28,431 | $ 2,266,235 |
| Kimberly-Clark Corp. | | 35,031 | 4,256,617 |
| | | | | $6,522,852 |
| Consumer Services – 2.0% | |
| Booking Holdings, Inc. (a) | | 2,216 | $ 7,860,639 |
| Electrical Equipment – 0.4% | |
| TE Connectivity Ltd. | | 12,110 | $ 1,701,455 |
| Electronics – 8.7% | |
| Applied Materials, Inc. | | 34,458 | $ 5,584,608 |
| Broadcom, Inc. | | 402 | 448,733 |
| Corning, Inc. | | 38,550 | 1,173,847 |
| Lam Research Corp. | | 8,404 | 6,582,517 |
| NVIDIA Corp. | | 30,010 | 14,861,552 |
| NXP Semiconductors N.V. | | 24,237 | 5,566,754 |
| | | | | $34,218,011 |
| Energy - Independent – 3.6% | |
| ConocoPhillips | | 4,773 | $ 554,002 |
| EOG Resources, Inc. | | 8,310 | 1,005,094 |
| Marathon Petroleum Corp. | | 17,622 | 2,614,400 |
| Phillips 66 | | 43,140 | 5,743,660 |
| Valero Energy Corp. | | 33,272 | 4,325,360 |
| | | | | $14,242,516 |
| Energy - Integrated – 0.1% | |
| Exxon Mobil Corp. | | 4,794 | $ 479,304 |
| Engineering - Construction – 0.2% | |
| EMCOR Group, Inc. | | 2,852 | $ 614,406 |
| Food & Beverages – 2.4% | |
| Archer Daniels Midland Co. | | 63,542 | $ 4,589,003 |
| General Mills, Inc. | | 21,822 | 1,421,485 |
| Mondelez International, Inc. | | 15,523 | 1,124,331 |
| PepsiCo, Inc. | | 13,762 | 2,337,338 |
| | | | | $9,472,157 |
| Forest & Paper Products – 0.2% | |
| Weyerhaeuser Co., REIT | | 17,757 | $ 617,411 |
| Gaming & Lodging – 0.3% | |
| Las Vegas Sands Corp. | | 26,516 | $ 1,304,852 |
| Health Maintenance Organizations – 2.2% | |
| Cigna Group | | 20,476 | $ 6,131,538 |
| Humana, Inc. | | 3,199 | 1,464,534 |
| UnitedHealth Group, Inc. | | 1,599 | 841,826 |
| | | | | $8,437,898 |
MFS Blended Research Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Insurance – 4.6% | |
| Ameriprise Financial, Inc. | | 14,784 | $ 5,615,407 |
| Berkshire Hathaway, Inc., “B” (a) | | 5,761 | 2,054,718 |
| Equitable Holdings, Inc. | | 83,215 | 2,771,060 |
| Hartford Financial Services Group, Inc. | | 9,201 | 739,576 |
| MetLife, Inc. | | 69,200 | 4,576,196 |
| Reinsurance Group of America, Inc. | | 2,273 | 367,726 |
| Voya Financial, Inc. | | 26,330 | 1,921,037 |
| | | | | $18,045,720 |
| Internet – 7.3% | |
| Alphabet, Inc., “A” (a) | | 69,880 | $ 9,761,537 |
| Alphabet, Inc., “C” (a) | | 74,245 | 10,463,348 |
| Meta Platforms, Inc., “A” (a) | | 23,383 | 8,276,647 |
| | | | | $28,501,532 |
| Machinery & Tools – 1.8% | |
| AGCO Corp. | | 12,371 | $ 1,501,963 |
| Eaton Corp. PLC | | 6,702 | 1,613,976 |
| Ingersoll Rand, Inc. | | 13,115 | 1,014,314 |
| Timken Co. | | 22,093 | 1,770,754 |
| Wabtec Corp. | | 9,318 | 1,182,454 |
| | | | | $7,083,461 |
| Major Banks – 3.6% | |
| Bank of America Corp. | | 42,032 | $ 1,415,218 |
| JPMorgan Chase & Co. | | 46,622 | 7,930,402 |
| Wells Fargo & Co. | | 95,115 | 4,681,560 |
| | | | | $14,027,180 |
| Medical & Health Technology & Services – 2.4% | |
| Cardinal Health, Inc. | | 10,933 | $ 1,102,046 |
| IQVIA Holdings, Inc. (a) | | 4,847 | 1,121,499 |
| McKesson Corp. | | 13,015 | 6,025,685 |
| Veeva Systems, Inc. (a) | | 5,398 | 1,039,223 |
| | | | | $9,288,453 |
| Medical Equipment – 1.2% | |
| Abbott Laboratories | | 6,238 | $ 686,617 |
| Align Technology, Inc. (a) | | 9,638 | 2,640,812 |
| Boston Scientific Corp. (a) | | 11,298 | 653,137 |
| Medtronic PLC | | 6,599 | 543,626 |
| | | | | $4,524,192 |
| Natural Gas - Distribution – 0.1% | |
| UGI Corp. | | 14,455 | $ 355,593 |
| Network & Telecom – 0.3% | |
| Motorola Solutions, Inc. | | 3,260 | $ 1,020,673 |
| Other Banks & Diversified Financials – 3.3% | |
| M&T Bank Corp. | | 16,797 | $ 2,302,533 |
| Mastercard, Inc., “A” | | 3,389 | 1,445,442 |
| SLM Corp. | | 142,441 | 2,723,472 |
MFS Blended Research Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Other Banks & Diversified Financials – continued | |
| Visa, Inc., “A” | | 24,690 | $ 6,428,042 |
| | | | | $12,899,489 |
| Pharmaceuticals – 6.9% | |
| AbbVie, Inc. | | 24,972 | $ 3,869,911 |
| Eli Lilly & Co. | | 6,778 | 3,951,032 |
| Johnson & Johnson | | 53,232 | 8,343,583 |
| Merck & Co., Inc. | | 15,184 | 1,655,360 |
| Organon & Co. | | 66,209 | 954,734 |
| Pfizer, Inc. | | 136,499 | 3,929,806 |
| Vertex Pharmaceuticals, Inc. (a) | | 10,133 | 4,123,016 |
| | | | | $26,827,442 |
| Printing & Publishing – 0.1% | |
| Lamar Advertising Co., REIT | | 3,654 | $ 388,347 |
| Railroad & Shipping – 1.4% | |
| CSX Corp. | | 155,389 | $ 5,387,337 |
| Real Estate – 1.2% | |
| Brixmor Property Group, Inc., REIT | | 57,646 | $ 1,341,422 |
| Host Hotels & Resorts, Inc., REIT | | 21,206 | 412,881 |
| Prologis, Inc., REIT | | 19,587 | 2,610,947 |
| Ryman Hospitality Properties, Inc., REIT | | 3,694 | 406,562 |
| | | | | $4,771,812 |
| Specialty Chemicals – 1.6% | |
| Chemours Co. | | 119,281 | $ 3,762,123 |
| Linde PLC | | 4,828 | 1,982,908 |
| RPM International, Inc. | | 5,938 | 662,859 |
| | | | | $6,407,890 |
| Specialty Stores – 9.3% | |
| Amazon.com, Inc. (a) | | 99,608 | $ 15,134,440 |
| Builders FirstSource, Inc. (a) | | 32,168 | 5,370,126 |
| Home Depot, Inc. | | 14,466 | 5,013,192 |
| O'Reilly Automotive, Inc. (a) | | 5,610 | 5,329,949 |
| Target Corp. | | 39,079 | 5,565,631 |
| | | | | $36,413,338 |
| Telecommunications - Wireless – 0.2% | |
| T-Mobile USA, Inc. | | 4,528 | $ 725,974 |
| Telephone Services – 0.4% | |
| Equinix, Inc., REIT | | 1,884 | $ 1,517,355 |
| Tobacco – 1.1% | |
| Altria Group, Inc. | | 105,296 | $ 4,247,641 |
MFS Blended Research Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Utilities - Electric Power – 3.1% | |
| Edison International | | 37,281 | $ 2,665,219 |
| PG&E Corp. | | 255,644 | 4,609,261 |
| Vistra Corp. | | 131,122 | 5,050,819 |
| | | | | $12,325,299 |
| Total Common Stocks (Identified Cost, $230,948,696) | | $388,071,005 |
| Investment Companies (h) – 0.3% |
| Money Market Funds – 0.3% | |
| MFS Institutional Money Market Portfolio, 5.42% (v) (Identified Cost, $1,118,813) | | | 1,118,740 | $ 1,118,963 |
| Other Assets, Less Liabilities – 0.5% | | 1,831,137 |
| Net Assets – 100.0% | $391,021,105 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $1,118,963 and $388,071,005, respectively. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| REIT | Real Estate Investment Trust |
See Notes to Financial Statements
MFS Blended Research Core Equity Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/23Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $230,948,696) | $388,071,005 |
| Investments in affiliated issuers, at value (identified cost, $1,118,813) | 1,118,963 |
| Receivables for | |
| Investments sold | 1,985,472 |
| Dividends | 332,304 |
| Other assets | 2,056 |
| Total assets | $391,509,800 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $416,075 |
| Payable to affiliates | |
| Investment adviser | 16,631 |
| Administrative services fee | 644 |
| Shareholder servicing costs | 13 |
| Distribution and/or service fees | 3,833 |
| Payable for independent Trustees' compensation | 572 |
| Accrued expenses and other liabilities | 50,927 |
| Total liabilities | $488,695 |
| Net assets | $391,021,105 |
| Net assets consist of | |
| Paid-in capital | $202,841,370 |
| Total distributable earnings (loss) | 188,179,735 |
| Net assets | $391,021,105 |
| Shares of beneficial interest outstanding | 7,088,749 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $251,495,079 | 4,535,918 | $55.45 |
| Service Class | 139,526,026 | 2,552,831 | 54.66 |
See Notes to Financial Statements
MFS Blended Research Core Equity Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/23 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $5,606,690 |
| Dividends from affiliated issuers | 96,690 |
| Other | 13,019 |
| Foreign taxes withheld | (14,422) |
| Total investment income | $5,701,977 |
| Expenses | |
| Management fee | $1,511,026 |
| Distribution and/or service fees | 342,643 |
| Shareholder servicing costs | 3,424 |
| Administrative services fee | 64,753 |
| Independent Trustees' compensation | 9,066 |
| Custodian fee | 14,670 |
| Audit and tax fees | 56,754 |
| Legal fees | 1,811 |
| Miscellaneous | 16,190 |
| Total expenses | $2,020,337 |
| Reduction of expenses by investment adviser | (48,299) |
| Net expenses | $1,972,038 |
| Net investment income (loss) | $3,729,939 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $28,288,651 |
| Affiliated issuers | (135) |
| Net realized gain (loss) | $28,288,516 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $62,640,459 |
| Affiliated issuers | (368) |
| Net unrealized gain (loss) | $62,640,091 |
| Net realized and unrealized gain (loss) | $90,928,607 |
| Change in net assets from operations | $94,658,546 |
See Notes to Financial Statements
MFS Blended Research Core Equity Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/23 | 12/31/22 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $3,729,939 | $4,893,870 |
| Net realized gain (loss) | 28,288,516 | 29,167,266 |
| Net unrealized gain (loss) | 62,640,091 | (116,585,749) |
| Change in net assets from operations | $94,658,546 | $(82,524,613) |
| Total distributions to shareholders | $(34,508,040) | $(80,090,203) |
| Change in net assets from fund share transactions | $(32,461,024) | $(9,140,433) |
| Total change in net assets | $27,689,482 | $(171,755,249) |
| Net assets | | |
| At beginning of period | 363,331,623 | 535,086,872 |
| At end of period | $391,021,105 | $363,331,623 |
See Notes to Financial Statements
MFS Blended Research Core Equity Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $47.48 | $68.53 | $57.28 | $53.06 | $45.29 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.56 | $0.68 | $0.63 | $0.67 | $0.80 |
| Net realized and unrealized gain (loss) | 12.46 | (10.77) | 15.96 | 7.21 | 11.74 |
| Total from investment operations | $13.02 | $(10.09) | $16.59 | $7.88 | $12.54 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.76) | $(0.68) | $(0.74) | $(0.88) | $(0.79) |
| From net realized gain | (4.29) | (10.28) | (4.60) | (2.78) | (3.98) |
| Total distributions declared to shareholders | $(5.05) | $(10.96) | $(5.34) | $(3.66) | $(4.77) |
| Net asset value, end of period (x) | $55.45 | $47.48 | $68.53 | $57.28 | $53.06 |
| Total return (%) (k)(r)(s)(x) | 28.53 | (16.00) | 29.53 | 15.34 | 29.17 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.44 | 0.45 | 0.45 | 0.45 | 0.45 |
| Expenses after expense reductions | 0.43 | 0.44 | 0.43 | 0.44 | 0.44 |
| Net investment income (loss) | 1.08 | 1.20 | 0.98 | 1.30 | 1.58 |
| Portfolio turnover | 42 | 43 | 51 | 56 | 46 |
| Net assets at end of period (000 omitted) | $251,495 | $230,413 | $313,788 | $280,679 | $285,654 |
| Service Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $46.82 | $67.71 | $56.68 | $52.54 | $44.87 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.42 | $0.53 | $0.47 | $0.54 | $0.67 |
| Net realized and unrealized gain (loss) | 12.29 | (10.62) | 15.76 | 7.12 | 11.64 |
| Total from investment operations | $12.71 | $(10.09) | $16.23 | $7.66 | $12.31 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.58) | $(0.52) | $(0.60) | $(0.74) | $(0.66) |
| From net realized gain | (4.29) | (10.28) | (4.60) | (2.78) | (3.98) |
| Total distributions declared to shareholders | $(4.87) | $(10.80) | $(5.20) | $(3.52) | $(4.64) |
| Net asset value, end of period (x) | $54.66 | $46.82 | $67.71 | $56.68 | $52.54 |
| Total return (%) (k)(r)(s)(x) | 28.20 | (16.20) | 29.18 | 15.06 | 28.87 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.69 | 0.70 | 0.70 | 0.70 | 0.70 |
| Expenses after expense reductions | 0.68 | 0.69 | 0.68 | 0.69 | 0.69 |
| Net investment income (loss) | 0.83 | 0.96 | 0.73 | 1.05 | 1.33 |
| Portfolio turnover | 42 | 43 | 51 | 56 | 46 |
| Net assets at end of period (000 omitted) | $139,526 | $132,919 | $221,299 | $191,661 | $186,380 |
See Notes to Financial Statements
MFS Blended Research Core Equity Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS Blended Research Core Equity Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Blended Research Core Equity Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When
MFS Blended Research Core Equity Portfolio
Notes to Financial Statements - continued
fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2023 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities | $388,071,005 | $— | $— | $388,071,005 |
| Mutual Funds | 1,118,963 | — | — | 1,118,963 |
| Total | $389,189,968 | $— | $— | $389,189,968 |
For further information regarding security characteristics, see the Portfolio of Investments.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Investment transactions are recorded on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
MFS Blended Research Core Equity Portfolio
Notes to Financial Statements - continued
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/23 | Year ended
12/31/22 |
| Ordinary income (including any short-term capital gains) | $4,817,507 | $22,880,184 |
| Long-term capital gains | 29,690,533 | 57,210,019 |
| Total distributions | $34,508,040 | $80,090,203 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/23 | |
| Cost of investments | $233,050,289 |
| Gross appreciation | 160,315,226 |
| Gross depreciation | (4,175,547) |
| Net unrealized appreciation (depreciation) | $156,139,679 |
| Undistributed ordinary income | 3,913,963 |
| Undistributed long-term capital gain | 28,126,093 |
| Total distributable earnings (loss) | $188,179,735 |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/23 | | Year
ended
12/31/22 |
| Initial Class | $22,263,520 | | $46,246,614 |
| Service Class | 12,244,520 | | 33,843,589 |
| Total | $34,508,040 | | $80,090,203 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.40% |
| In excess of $1 billion and up to $2.5 billion | 0.375% |
| In excess of $2.5 billion | 0.35% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this management fee reduction amounted to $48,299, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.39% of the fund's average daily net assets.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares as well
MFS Blended Research Core Equity Portfolio
Notes to Financial Statements - continued
as shareholder servicing and account maintenance activities. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. The distribution and/or service fees are computed daily and paid monthly.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2023, the fee was $2,560, which equated to 0.0007% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2023, these costs amounted to $864.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is computed daily and paid monthly. The administrative services fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.0171% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the year ended December 31, 2023, this reimbursement amounted to $12,873, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the year ended December 31, 2023, purchases and sales of investments, other than short-term obligations, aggregated $157,735,546 and $220,818,589, respectively.
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 36,042 | $1,843,449 | | 117,071 | $6,383,215 |
| Service Class | 139,329 | 7,135,498 | | 964,845 | 57,159,649 |
| | 175,371 | $8,978,947 | | 1,081,916 | $63,542,864 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 435,877 | $21,937,693 | | 881,825 | $45,519,812 |
| Service Class | 246,567 | 12,244,520 | | 664,251 | 33,843,589 |
| | 682,444 | $34,182,213 | | 1,546,076 | $79,363,401 |
| Shares reacquired | | | | | |
| Initial Class | (788,619) | $(40,943,668) | | (725,440) | $(40,687,292) |
| Service Class | (671,917) | (34,678,516) | | (2,058,508) | (111,359,406) |
| | (1,460,536) | $(75,622,184) | | (2,783,948) | $(152,046,698) |
| Net change | | | | | |
| Initial Class | (316,700) | $(17,162,526) | | 273,456 | $11,215,735 |
| Service Class | (286,021) | (15,298,498) | | (429,412) | (20,356,168) |
| | (602,721) | $(32,461,024) | | (155,956) | $(9,140,433) |
MFS Blended Research Core Equity Portfolio
Notes to Financial Statements - continued
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 14, 2024 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2023, the fund’s commitment fee and interest expense were $2,095 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $2,601,486 | $56,507,544 | $57,989,564 | $(135) | $(368) | $1,118,963 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $96,690 | $— |
MFS Blended Research Core Equity Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Blended Research Core Equity Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Blended Research Core Equity Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 2024
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Blended Research Core Equity Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2024, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 57) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 69) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 72) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 69) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 68) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 68) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 62) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 67) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 67) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 66) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 55) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
MFS Blended Research Core Equity Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
John W. Clark, Jr. (k)
(age 56) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 55) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 56) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 47) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022) |
Amanda S. Mooradian (k)
(age 44) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 53) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 53) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
James O. Yost (k)
(age 63) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Caroselli, Jones and Otis are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
MFS Blended Research Core Equity Portfolio
Trustees and Officers - continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Congress Street, Suite 1
Boston, MA 02114-2016 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Jim Fallon
Matt Krummell
Jonathan Sage
Jed Stocks | |
MFS Blended Research Core Equity Portfolio
Board Review of Investment Advisory Agreement
MFS Blended Research Core Equity Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2023 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2022 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2022, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 4th quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 2nd quintile for the one-year period and the 1st quintile for the three-year period ended December 31, 2022 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. The Trustees noted that the total return performance (Class I shares) of the Fund’s retail counterpart, MFS Blended Research Core Equity Fund, which has substantially similar investment strategies, was in the 3rd
MFS Blended Research Core Equity Portfolio
Board Review of Investment Advisory Agreement - continued
quintile relative to the other funds in its Broadridge performance universe for the five-year period ended December 31, 2022. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each lower than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2.5 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2023.
MFS Blended Research Core Equity Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $32,660,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 100.00% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2023
MFS® Core Equity Portfolio
MFS® Variable Insurance Trust II
MFS® Core Equity Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Core Equity Portfolio
Portfolio structure
Top ten holdings
| Microsoft Corp. | 7.3% |
| Apple, Inc. | 4.1% |
| Amazon.com, Inc. | 3.7% |
| Alphabet, Inc., “A” | 3.5% |
| Meta Platforms, Inc., “A” | 2.0% |
| Visa, Inc., “A” | 1.8% |
| Broadcom, Inc. | 1.7% |
| JPMorgan Chase & Co. | 1.6% |
| Exxon Mobil Corp. | 1.6% |
| Home Depot, Inc. | 1.3% |
Global equity sectors (k)
| Technology | 34.5% |
| Capital Goods | 14.0% |
| Financial Services | 13.6% |
| Health Care | 12.7% |
| Consumer Cyclicals | 12.2% |
| Energy | 6.2% |
| Consumer Staples | 4.2% |
| Telecommunications and Cable Television (s) | 1.9% |
| (k) | The sectors set forth above and the associated portfolio composition are based on MFS’ own custom sector classification methodology. |
| (s) | Includes securities sold short. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2023.
The portfolio is actively managed and current holdings may be different.
MFS Core Equity Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2023, Initial Class shares of the MFS Core Equity Portfolio (fund) provided a total return of 23.14%, while Service Class shares of the fund provided a total return of 22.79%. These compare with a return of 25.96% over the same period for the fund’s benchmark, the Russell 3000® Index.
Market Environment
During the reporting period, central banks around the world had to combat the strongest inflationary pressures in four decades, fueled by the global fiscal response to the pandemic, disrupted supply chains and the dislocations to energy markets stemming from the war in Ukraine. Interest rates rose substantially, but the effects of a tighter monetary policy may not have been fully experienced yet, given that monetary policy works with long and variable lags. Strains resulting from the abrupt tightening of monetary policy began to affect some parts of the economy, most acutely among small and regional US banks, which suffered from deposit flight as depositors sought higher yields on their savings. Additionally, activity in the US housing sector has slowed as a result of higher mortgage rates. China’s abandonment of its Zero-COVID policy ushered in a brief uptick in economic activity in the world’s second-largest economy in early 2023, although its momentum soon stalled as the focus turned to the country’s highly indebted property development sector. In developed markets, consumer demand for services remained stronger than the demand for goods.
Early on, policymakers found themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, central banks focused on controlling price pressures while also confronting increasing financial stability concerns. Central banks had to juggle achieving their inflation mandates while using macroprudential tools (financial policies aimed at safeguarding the stability of the financial system) to keep banking systems liquid, a potentially difficult balancing act, and one that suggested that we may be nearing a peak in policy rates. As inflationary pressures eased toward the end of the period, financial conditions loosened in anticipation of easier monetary policy, boosting the market’s appetite for risk. Rapid advancements in artificial intelligence were a focus for investors.
Normalizing supply chains, low levels of unemployment across developed markets and signs that inflation levels have peaked were supportive factors for the macroeconomic backdrop.
Detractors from Performance
Relative to the Russell 3000® Index, stock selection within the technology sector was a primary detractor from the fund’s performance. Here, the timing of the fund’s ownership in shares of computer graphics processor maker NVIDIA and social networking service provider Meta Platforms held back relative results. The stock price of NVIDIA climbed as the company reported earnings per share results well above expectations, primarily driven by stronger-than-expected revenue growth within its data center, generative AI (artificial intelligence), and networking segments. Revenue and earnings per share guidance were significantly above expectations, driven by continued robust demand related to generative AI.
Security selection within the consumer cyclicals sector also hurt relative returns led by the fund’s overweight position in merchandise store operator Dollar General. The stock price of Dollar General declined as the company posted below-consensus earnings per share results driven by worse-than-expected sales and higher-than-expected operating and selling, general, and administrative expenses.
Elsewhere, not owning shares of strong-performing electric vehicle manufacturer Tesla weakened relative performance. Despite operating margin pressures due to aggressive vehicle price cuts, Tesla’s share price advanced as the company delivered a record number of vehicles. The fund’s overweight holdings of global health services provider Cigna, pharmaceutical giant Pfizer, life sciences consumables provider Maravai Lifesciences Holdings, integrated oil and gas company ExxonMobil, data, video, and voice services provider Cable One, and risk management and human capital consulting services provider Aon were also among the top relative detractors for the reporting period.
Contributors to Performance
During the reporting period, stock selection within the health care sector contributed to relative performance. Within this sector, not owning shares of health insurance and Medicare/Medicaid provider UnitedHealth Group and global pharmaceutical company Bristol-Myers Squibb helped relative returns as both stocks underperformed the benchmark. The timing of the fund’s ownership in shares of pharmaceutical company AbbVie also supported relative results. AbbVie’s stock price rose as the company posted strong results in its aesthetics segment and immunology products, Skyrizi and Rinvoq, and upwardly revised its earnings per share guidance.
Security selection within the energy sector also benefited relative results. Within this sector, the fund’s avoidance of weak-performing integrated energy company Chevron aided relative performance. The share price of Chevron fell as the company reported revenue that missed expectations due to lower margins in its downstream operations, higher-than-forecasted capital expenditures, and costs related to the acquisition of Hess. Energy stocks were broadly dragged down by weakness in crude oil prices, which suffered from both strong supply and weak demand dynamics.
MFS Core Equity Portfolio
Management Review - continued
In other sectors, the fund’s overweight positions in broadband communications and networking services company Broadcom, software giant Microsoft, enterprise cloud computing solutions provider ServiceNow, internet retailer Amazon.com, semiconductor company Lam Research, and integrated circuits and electronic devices developer Cadence Design Systems strengthened the fund’s relative returns.
Respectfully,
Portfolio Manager(s)
Joseph MacDougall
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Core Equity Portfolio
Performance Summary Through 12/31/23
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/23
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 5/12/1997 | 23.14% | 15.08% | 11.61% |
| Service Class | 8/24/2001 | 22.79% | 14.79% | 11.33% |
Comparative benchmark(s)
| Russell 3000® Index (f) | 25.96% | 15.16% | 11.48% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Russell 3000® Index(h) – constructed to provide a comprehensive barometer for the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.
It is not possible to invest directly in an index.
| (h) | Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this document. No further distribution of Russell Data is permitted without Russell's express written consent. Russell does not promote, sponsor, or endorse the content of this document. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
MFS Core Equity Portfolio
Performance Summary – continued
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Core Equity Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2023 through December 31, 2023
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2023 through December 31, 2023.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/23 | Ending
Account Value
12/31/23 | Expenses
Paid During
Period (p)
7/01/23-12/31/23 |
| Initial Class | Actual | 0.81% | $1,000.00 | $1,080.67 | $4.25 |
| Hypothetical (h) | 0.81% | $1,000.00 | $1,021.12 | $4.13 |
| Service Class | Actual | 1.06% | $1,000.00 | $1,078.94 | $5.55 |
| Hypothetical (h) | 1.06% | $1,000.00 | $1,019.86 | $5.40 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
Notes to Expense Table
Expense ratios include 0.01% of investment related expenses from short sales (See Note 2 of the Notes to Financial Statements) that are outside of the expense limitation arrangement (See Note 3 of the Notes to Financial Statements).
MFS Core Equity Portfolio
Portfolio of Investments − 12/31/23
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 99.4% |
| Aerospace & Defense – 2.6% | |
| Boeing Co. (a) | | 5,748 | $ 1,498,274 |
| General Dynamics Corp. | | 3,322 | 862,624 |
| Honeywell International, Inc. | | 9,008 | 1,889,067 |
| Howmet Aerospace, Inc. | | 11,403 | 617,130 |
| Leidos Holdings, Inc. | | 17,357 | 1,878,722 |
| | | | | $6,745,817 |
| Alcoholic Beverages – 0.2% | |
| Constellation Brands, Inc., “A” | | 2,173 | $ 525,323 |
| Apparel Manufacturers – 0.6% | |
| Deckers Outdoor Corp. (a) | | 523 | $ 349,589 |
| NIKE, Inc., “B” | | 9,103 | 988,313 |
| VF Corp. | | 15,775 | 296,570 |
| | | | | $1,634,472 |
| Automotive – 0.3% | |
| Aptiv PLC (a) | | 6,549 | $ 587,576 |
| Rivian Automotive, Inc., “A” (a)(l) | | 9,688 | 227,281 |
| | | | | $814,857 |
| Broadcasting – 0.8% | |
| Omnicom Group, Inc. | | 5,113 | $ 442,326 |
| Walt Disney Co. | | 17,446 | 1,575,199 |
| | | | | $2,017,525 |
| Brokerage & Asset Managers – 2.0% | |
| Cboe Global Markets, Inc. | | 1,652 | $ 294,981 |
| Charles Schwab Corp. | | 15,303 | 1,052,846 |
| CME Group, Inc. | | 4,623 | 973,604 |
| Invesco Ltd. | | 45,246 | 807,189 |
| KKR & Co., Inc. | | 17,007 | 1,409,030 |
| Raymond James Financial, Inc. | | 5,745 | 640,567 |
| | | | | $5,178,217 |
| Business Services – 3.5% | |
| Accenture PLC, “A” | | 1,473 | $ 516,890 |
| Fidelity National Information Services, Inc. | | 7,580 | 455,331 |
| Fiserv, Inc. (a) | | 5,624 | 747,092 |
| Insperity, Inc. | | 10,033 | 1,176,068 |
| Morningstar, Inc. | | 5,259 | 1,505,336 |
| TransUnion | | 20,750 | 1,425,733 |
| TriNet Group, Inc. (a) | | 10,505 | 1,249,360 |
| Tyler Technologies, Inc. (a) | | 1,749 | 731,292 |
| Verisk Analytics, Inc., “A” | | 3,657 | 873,511 |
| WNS (Holdings) Ltd., ADR (a) | | 5,671 | 358,407 |
| | | | | $9,039,020 |
| Cable TV – 0.4% | |
| Cable One, Inc. | | 1,964 | $ 1,093,143 |
MFS Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Chemicals – 0.5% | |
| Eastman Chemical Co. | | 11,611 | $ 1,042,900 |
| Element Solutions, Inc. | | 13,201 | 305,471 |
| | | | | $1,348,371 |
| Computer Software – 11.2% | |
| Autodesk, Inc. (a) | | 4,092 | $ 996,320 |
| Cadence Design Systems, Inc. (a) | | 7,582 | 2,065,109 |
| Check Point Software Technologies Ltd. (a) | | 2,601 | 397,407 |
| Datadog, Inc., “A” (a) | | 5,541 | 672,567 |
| Dun & Bradstreet Holdings, Inc. | | 254,186 | 2,973,976 |
| Flywire Corp. (a) | | 14,173 | 328,105 |
| Microsoft Corp. (s) | | 50,371 | 18,941,511 |
| Salesforce, Inc. (a) | | 10,564 | 2,779,811 |
| | | | | $29,154,806 |
| Computer Software - Systems – 6.8% | |
| Apple, Inc. (s) | | 55,553 | $ 10,695,619 |
| Block, Inc., “A” (a) | | 6,642 | 513,759 |
| Guidewire Software, Inc. (a) | | 4,980 | 543,019 |
| HubSpot, Inc. (a) | | 1,118 | 649,044 |
| Rapid7, Inc. (a) | | 14,348 | 819,271 |
| Seagate Technology Holdings PLC | | 18,481 | 1,577,723 |
| ServiceNow, Inc. (a) | | 3,300 | 2,331,417 |
| Zebra Technologies Corp., “A” (a) | | 1,801 | 492,267 |
| | | | | $17,622,119 |
| Construction – 1.6% | |
| AvalonBay Communities, Inc., REIT | | 1,624 | $ 304,045 |
| AZEK Co., Inc. (a) | | 15,689 | 600,104 |
| Masco Corp. | | 12,779 | 855,938 |
| Sherwin-Williams Co. | | 2,541 | 792,538 |
| Summit Materials, Inc., “A” (a) | | 26,279 | 1,010,690 |
| Vulcan Materials Co. | | 2,312 | 524,847 |
| | | | | $4,088,162 |
| Consumer Products – 1.5% | |
| Colgate-Palmolive Co. | | 12,201 | $ 972,542 |
| e.l.f. Beauty, Inc. (a) | | 2,439 | 352,045 |
| International Flavors & Fragrances, Inc. | | 6,533 | 528,977 |
| Kenvue, Inc. | | 55,992 | 1,205,508 |
| Procter & Gamble Co. | | 6,712 | 983,576 |
| | | | | $4,042,648 |
| Consumer Services – 0.6% | |
| Booking Holdings, Inc. (a) | | 338 | $ 1,198,960 |
| Grand Canyon Education, Inc. (a) | | 2,839 | 374,862 |
| | | | | $1,573,822 |
| Containers – 0.2% | |
| Crown Holdings, Inc. | | 4,572 | $ 421,035 |
| Electrical Equipment – 1.8% | |
| AMETEK, Inc. | | 7,051 | $ 1,162,639 |
| Amphenol Corp., “A” | | 8,270 | 819,805 |
| Emerson Electric Co. | | 6,932 | 674,692 |
MFS Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Electrical Equipment – continued | |
| Johnson Controls International PLC | | 10,394 | $ 599,110 |
| nVent Electric PLC | | 8,026 | 474,256 |
| Sensata Technologies Holding PLC | | 12,407 | 466,131 |
| TE Connectivity Ltd. | | 3,169 | 445,245 |
| | | | | $4,641,878 |
| Electronics – 6.9% | |
| Analog Devices, Inc. | | 10,270 | $ 2,039,211 |
| Applied Materials, Inc. | | 11,980 | 1,941,599 |
| Broadcom, Inc. | | 3,970 | 4,431,512 |
| Lam Research Corp. | | 3,052 | 2,390,510 |
| Marvell Technology, Inc. | | 26,258 | 1,583,620 |
| Monolithic Power Systems, Inc. | | 1,346 | 849,030 |
| NVIDIA Corp. | | 6,535 | 3,236,263 |
| NXP Semiconductors N.V. | | 6,405 | 1,471,100 |
| | | | | $17,942,845 |
| Energy - Independent – 1.5% | |
| ConocoPhillips | | 17,586 | $ 2,041,207 |
| Diamondback Energy, Inc. | | 4,696 | 728,256 |
| Phillips 66 | | 4,929 | 656,247 |
| Valero Energy Corp. | | 3,855 | 501,150 |
| | | | | $3,926,860 |
| Energy - Integrated – 1.6% | |
| Exxon Mobil Corp. | | 40,727 | $ 4,071,885 |
| Energy - Renewables – 0.1% | |
| Enphase Energy, Inc. (a) | | 2,050 | $ 270,887 |
| Engineering - Construction – 0.7% | |
| APi Group, Inc. (a) | | 26,080 | $ 902,368 |
| Jacobs Solutions, Inc. | | 7,376 | 957,405 |
| | | | | $1,859,773 |
| Entertainment – 0.4% | |
| Spotify Technology S.A. (a) | | 4,323 | $ 812,335 |
| Vivid Seats, Inc., “A” (a) | | 34,147 | 215,809 |
| | | | | $1,028,144 |
| Food & Beverages – 2.0% | |
| Archer Daniels Midland Co. | | 8,089 | $ 584,187 |
| Coca-Cola Co. | | 6,443 | 379,686 |
| Coca-Cola Europacific Partners PLC | | 8,685 | 579,637 |
| Mondelez International, Inc. | | 22,728 | 1,646,189 |
| PepsiCo, Inc. | | 12,683 | 2,154,081 |
| | | | | $5,343,780 |
| Forest & Paper Products – 0.5% | |
| Rayonier, Inc., REIT | | 40,921 | $ 1,367,171 |
MFS Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Gaming & Lodging – 0.6% | |
| International Game Technology PLC | | 16,576 | $ 454,348 |
| Las Vegas Sands Corp. | | 3,258 | 160,326 |
| Marriott International, Inc., “A” | | 4,098 | 924,140 |
| | | | | $1,538,814 |
| General Merchandise – 0.7% | |
| Dollar General Corp. | | 6,869 | $ 933,841 |
| Dollar Tree, Inc. (a) | | 5,779 | 820,907 |
| | | | | $1,754,748 |
| Health Maintenance Organizations – 1.2% | |
| Cigna Group | | 10,210 | $ 3,057,384 |
| Insurance – 3.6% | |
| Aon PLC | | 7,048 | $ 2,051,109 |
| Arthur J. Gallagher & Co. | | 6,602 | 1,484,658 |
| Assurant, Inc. | | 2,717 | 457,787 |
| Chubb Ltd. | | 8,265 | 1,867,890 |
| Hartford Financial Services Group, Inc. | | 9,545 | 767,227 |
| MetLife, Inc. | | 9,816 | 649,132 |
| Reinsurance Group of America, Inc. | | 2,994 | 484,369 |
| Voya Financial, Inc. | | 8,831 | 644,310 |
| Willis Towers Watson PLC | | 3,578 | 863,014 |
| | | | | $9,269,496 |
| Internet – 5.9% | |
| Alphabet, Inc., “A” (a)(s) | | 65,446 | $ 9,142,152 |
| Gartner, Inc. (a) | | 2,154 | 971,691 |
| Meta Platforms, Inc., “A” (a) | | 14,590 | 5,164,276 |
| | | | | $15,278,119 |
| Leisure & Toys – 0.9% | |
| Electronic Arts, Inc. | | 8,121 | $ 1,111,034 |
| Hasbro, Inc. | | 5,782 | 295,229 |
| Take-Two Interactive Software, Inc. (a) | | 5,124 | 824,708 |
| | | | | $2,230,971 |
| Machinery & Tools – 2.3% | |
| AGCO Corp. | | 7,218 | $ 876,337 |
| Eaton Corp. PLC | | 8,443 | 2,033,243 |
| Flowserve Corp. | | 6,505 | 268,136 |
| Ingersoll Rand, Inc. | | 9,279 | 717,638 |
| PACCAR, Inc. | | 7,740 | 755,811 |
| Regal Rexnord Corp. | | 3,401 | 503,416 |
| Wabtec Corp. | | 7,466 | 947,436 |
| | | | | $6,102,017 |
| Major Banks – 3.2% | |
| JPMorgan Chase & Co. (s) | | 24,245 | $ 4,124,074 |
| Morgan Stanley | | 15,344 | 1,430,828 |
| PNC Financial Services Group, Inc. | | 10,142 | 1,570,489 |
| Wells Fargo & Co. | | 25,163 | 1,238,523 |
| | | | | $8,363,914 |
MFS Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Medical & Health Technology & Services – 1.7% | |
| Encompass Health Corp. | | 12,016 | $ 801,707 |
| ICON PLC (a) | | 3,482 | 985,650 |
| McKesson Corp. | | 3,607 | 1,669,969 |
| Veeva Systems, Inc. (a) | | 4,841 | 931,989 |
| | | | | $4,389,315 |
| Medical Equipment – 3.9% | |
| Agilent Technologies, Inc. | | 7,166 | $ 996,289 |
| Becton, Dickinson and Co. | | 7,821 | 1,906,994 |
| Boston Scientific Corp. (a) | | 37,821 | 2,186,432 |
| Maravai Lifesciences Holdings, Inc., “A” (a) | | 40,679 | 266,448 |
| Masimo Corp. (a) | | 5,149 | 603,514 |
| Medtronic PLC | | 27,601 | 2,273,770 |
| QuidelOrtho Corp. (a) | | 8,020 | 591,074 |
| STERIS PLC | | 6,557 | 1,441,557 |
| | | | | $10,266,078 |
| Natural Gas - Distribution – 0.3% | |
| Southwest Gas Holdings, Inc. | | 13,011 | $ 824,247 |
| Natural Gas - Pipeline – 0.4% | |
| Cheniere Energy, Inc. | | 3,404 | $ 581,097 |
| Targa Resources Corp. | | 5,131 | 445,730 |
| | | | | $1,026,827 |
| Network & Telecom – 0.3% | |
| Motorola Solutions, Inc. | | 2,551 | $ 798,693 |
| Oil Services – 0.4% | |
| Schlumberger Ltd. | | 13,126 | $ 683,077 |
| TechnipFMC PLC | | 18,749 | 377,605 |
| | | | | $1,060,682 |
| Other Banks & Diversified Financials – 3.5% | |
| American Express Co. | | 5,533 | $ 1,036,552 |
| First Interstate BancSystem, Inc. | | 10,210 | 313,957 |
| M&T Bank Corp. | | 4,739 | 649,622 |
| Moody's Corp. | | 3,027 | 1,182,225 |
| Northern Trust Corp. | | 4,991 | 421,141 |
| Pacific Premier Bancorp, Inc. | | 7,478 | 217,685 |
| U.S. Bancorp | | 12,130 | 524,986 |
| United Community Bank, Inc. | | 9,587 | 280,516 |
| Visa, Inc., “A” | | 17,732 | 4,616,526 |
| | | | | $9,243,210 |
| Pharmaceuticals – 5.9% | |
| AbbVie, Inc. | | 19,751 | $ 3,060,813 |
| Eli Lilly & Co. | | 5,772 | 3,364,614 |
| Johnson & Johnson | | 21,760 | 3,410,662 |
| Pfizer, Inc. | | 78,496 | 2,259,900 |
| Vertex Pharmaceuticals, Inc. (a) | | 5,448 | 2,216,737 |
| Zoetis, Inc. | | 5,651 | 1,115,338 |
| | | | | $15,428,064 |
MFS Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Pollution Control – 0.6% | |
| GFL Environmental, Inc. | | 42,940 | $ 1,481,859 |
| Railroad & Shipping – 0.6% | |
| Canadian Pacific Kansas City Ltd. | | 20,656 | $ 1,633,063 |
| Real Estate – 1.2% | |
| Broadstone Net Lease, Inc., REIT | | 30,131 | $ 518,856 |
| Empire State Realty Trust, REIT, “A” | | 41,314 | 400,333 |
| Extra Space Storage, Inc., REIT | | 3,708 | 594,504 |
| Jones Lang LaSalle, Inc. (a) | | 1,896 | 358,097 |
| Prologis, Inc., REIT | | 2,088 | 278,330 |
| Sun Communities, Inc., REIT | | 3,874 | 517,760 |
| W.P. Carey, Inc., REIT | | 9,121 | 591,132 |
| | | | | $3,259,012 |
| Restaurants – 1.4% | |
| Starbucks Corp. | | 29,027 | $ 2,786,882 |
| Wendy's Co. | | 40,999 | 798,661 |
| | | | | $3,585,543 |
| Specialty Chemicals – 1.7% | |
| Air Products & Chemicals, Inc. | | 3,067 | $ 839,745 |
| Chemours Co. | | 25,688 | 810,199 |
| Corteva, Inc. | | 13,823 | 662,398 |
| DuPont de Nemours, Inc. | | 9,710 | 746,990 |
| Linde PLC | | 2,872 | 1,179,559 |
| Tronox Holdings PLC | | 19,322 | 273,600 |
| | | | | $4,512,491 |
| Specialty Stores – 6.3% | |
| Amazon.com, Inc. (a)(s) | | 62,669 | $ 9,521,928 |
| Burlington Stores, Inc. (a) | | 2,494 | 485,033 |
| Home Depot, Inc. | | 9,960 | 3,451,638 |
| Ross Stores, Inc. | | 8,132 | 1,125,387 |
| Target Corp. | | 12,857 | 1,831,094 |
| | | | | $16,415,080 |
| Telecommunications - Wireless – 1.5% | |
| Liberty Broadband Corp. (a) | | 13,482 | $ 1,086,514 |
| SBA Communications Corp., REIT | | 4,750 | 1,205,028 |
| T-Mobile USA, Inc. | | 10,307 | 1,652,521 |
| | | | | $3,944,063 |
| Telephone Services – 0.1% | |
| Altice USA, Inc., “A” (a) | | 65,959 | $ 214,367 |
| Tobacco – 0.4% | |
| Philip Morris International, Inc. | | 11,897 | $ 1,119,270 |
| Trucking – 0.6% | |
| J.B. Hunt Transport Services, Inc. | | 3,531 | $ 705,282 |
| Saia, Inc. (a) | | 1,865 | 817,280 |
| | | | | $1,522,562 |
MFS Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Utilities - Electric Power – 1.9% | |
| Constellation Energy | | 3,937 | $ 460,196 |
| Dominion Energy, Inc. | | 4,333 | 203,651 |
| Duke Energy Corp. | | 7,241 | 702,667 |
| Exelon Corp. | | 11,809 | 423,943 |
| NextEra Energy, Inc. | | 16,950 | 1,029,543 |
| PG&E Corp. | | 77,137 | 1,390,780 |
| Xcel Energy, Inc. | | 13,555 | 839,190 |
| | | | | $5,049,970 |
| Total Common Stocks (Identified Cost, $165,170,352) | | $259,122,419 |
| Investment Companies (h) – 0.7% |
| Money Market Funds – 0.7% | |
| MFS Institutional Money Market Portfolio, 5.42% (v) (Identified Cost, $1,937,614) | | | 1,937,318 | $ 1,937,705 |
| Securities Sold Short – (0.1)% |
| Telecommunications - Wireless – (0.1)% |
| Crown Castle, Inc., REIT (Proceeds Received, $192,806) | | | (2,286) | $ (263,324) |
| Other Assets, Less Liabilities – (0.0)% | | (13,100) |
| Net Assets – 100.0% | $260,783,700 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $1,937,705 and $259,122,419, respectively. | | | |
| (l) | A portion of this security is on loan. See Note 2 for additional information. | | | |
| (s) | Security or a portion of the security was pledged to cover collateral requirements for securities sold short. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| REIT | Real Estate Investment Trust |
At December 31, 2023, the fund had cash collateral of $3,200 and other liquid securities with an aggregate value of $956,961 to cover any collateral or margin obligations for securities sold short. Restricted cash and/or deposits with brokers in the Statement of Assets and Liabilities are comprised of cash collateral.
See Notes to Financial Statements
MFS Core Equity Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/23Assets | |
| Investments in unaffiliated issuers, at value, including $204,548 of securities on loan (identified cost, $165,170,352) | $259,122,419 |
| Investments in affiliated issuers, at value (identified cost, $1,937,614) | 1,937,705 |
| Deposits with brokers for | |
| Securities sold short | 3,200 |
| Receivables for | |
| Fund shares sold | 30,183 |
| Interest and dividends | 263,409 |
| Other assets | 101,001 |
| Total assets | $261,457,917 |
| Liabilities | |
| Payable to custodian | $4,000 |
| Payables for | |
| Securities sold short, at value (proceeds received, $192,806) | 263,324 |
| Fund shares reacquired | 319,009 |
| Payable to affiliates | |
| Investment adviser | 21,141 |
| Administrative services fee | 472 |
| Shareholder servicing costs | 13 |
| Distribution and/or service fees | 2,314 |
| Accrued expenses and other liabilities | 63,944 |
| Total liabilities | $674,217 |
| Net assets | $260,783,700 |
| Net assets consist of | |
| Paid-in capital | $154,063,387 |
| Total distributable earnings (loss) | 106,720,313 |
| Net assets | $260,783,700 |
| Shares of beneficial interest outstanding | 9,483,392 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $176,610,818 | 6,383,549 | $27.67 |
| Service Class | 84,172,882 | 3,099,843 | 27.15 |
See Notes to Financial Statements
MFS Core Equity Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/23 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $3,509,322 |
| Dividends from affiliated issuers | 102,156 |
| Other | 9,770 |
| Income on securities loaned | 4,963 |
| Foreign taxes withheld | (4,825) |
| Total investment income | $3,621,386 |
| Expenses | |
| Management fee | $1,806,419 |
| Distribution and/or service fees | 192,690 |
| Shareholder servicing costs | 3,612 |
| Administrative services fee | 44,994 |
| Independent Trustees' compensation | 5,976 |
| Custodian fee | 16,937 |
| Shareholder communications | 17,831 |
| Audit and tax fees | 59,444 |
| Legal fees | 1,253 |
| Dividend and interest expense on securities sold short | 19,786 |
| Interest expense and fees | 1,339 |
| Miscellaneous | 19,713 |
| Total expenses | $2,189,994 |
| Reduction of expenses by investment adviser | (35,600) |
| Net expenses | $2,154,394 |
| Net investment income (loss) | $1,466,992 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $11,245,469 |
| Affiliated issuers | (58) |
| Securities sold short | 568,623 |
| Foreign currency | 40 |
| Net realized gain (loss) | $11,814,074 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $37,308,925 |
| Affiliated issuers | (868) |
| Securities sold short | (531,814) |
| Translation of assets and liabilities in foreign currencies | (17) |
| Net unrealized gain (loss) | $36,776,226 |
| Net realized and unrealized gain (loss) | $48,590,300 |
| Change in net assets from operations | $50,057,292 |
See Notes to Financial Statements
MFS Core Equity Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/23 | 12/31/22 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $1,466,992 | $1,160,071 |
| Net realized gain (loss) | 11,814,074 | 11,623,224 |
| Net unrealized gain (loss) | 36,776,226 | (60,973,018) |
| Change in net assets from operations | $50,057,292 | $(48,189,723) |
| Total distributions to shareholders | $(12,887,050) | $(27,561,170) |
| Change in net assets from fund share transactions | $841,661 | $15,779,075 |
| Total change in net assets | $38,011,903 | $(59,971,818) |
| Net assets | | |
| At beginning of period | 222,771,797 | 282,743,615 |
| At end of period | $260,783,700 | $222,771,797 |
See Notes to Financial Statements
MFS Core Equity Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $23.73 | $32.33 | $27.88 | $24.81 | $21.68 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.18 | $0.15 | $0.09 | $0.14 | $0.18 |
| Net realized and unrealized gain (loss) | 5.17 | (5.50) | 6.85 | 4.38 | 6.59 |
| Total from investment operations | $5.35 | $(5.35) | $6.94 | $4.52 | $6.77 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.14) | $(0.09) | $(0.14) | $(0.18) | $(0.21) |
| From net realized gain | (1.27) | (3.16) | (2.35) | (1.27) | (3.43) |
| Total distributions declared to shareholders | $(1.41) | $(3.25) | $(2.49) | $(1.45) | $(3.64) |
| Net asset value, end of period (x) | $27.67 | $23.73 | $32.33 | $27.88 | $24.81 |
| Total return (%) (k)(r)(s)(x) | 23.14 | (17.27) | 25.31 | 18.71 | 33.19 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.83 | 0.86 | 0.85 | 0.87 | 0.88 |
| Expenses after expense reductions | 0.81 | 0.83 | 0.83 | 0.86 | 0.87 |
| Net investment income (loss) | 0.69 | 0.55 | 0.29 | 0.56 | 0.75 |
| Portfolio turnover | 35 | 28 | 35 | 46 | 37 |
| Net assets at end of period (000 omitted) | $176,611 | $152,479 | $206,060 | $177,571 | $167,488 |
| Supplemental Ratios (%): | | | | | |
| Ratios of expenses to average net assets after expense reductions excluding short sale expenses and interest expense and fees | 0.81 | 0.81 | 0.81 | 0.83 | 0.83 |
See Notes to Financial Statements
MFS Core Equity Portfolio
Financial Highlights - continued
| Service Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $23.32 | $31.84 | $27.50 | $24.50 | $21.44 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.11 | $0.08 | $0.02 | $0.08 | $0.12 |
| Net realized and unrealized gain (loss) | 5.07 | (5.42) | 6.76 | 4.31 | 6.51 |
| Total from investment operations | $5.18 | $(5.34) | $6.78 | $4.39 | $6.63 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.08) | $(0.02) | $(0.09) | $(0.12) | $(0.14) |
| From net realized gain | (1.27) | (3.16) | (2.35) | (1.27) | (3.43) |
| Total distributions declared to shareholders | $(1.35) | $(3.18) | $(2.44) | $(1.39) | $(3.57) |
| Net asset value, end of period (x) | $27.15 | $23.32 | $31.84 | $27.50 | $24.50 |
| Total return (%) (k)(r)(s)(x) | 22.79 | (17.48) | 25.05 | 18.39 | 32.87 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.08 | 1.11 | 1.10 | 1.12 | 1.13 |
| Expenses after expense reductions | 1.06 | 1.08 | 1.08 | 1.11 | 1.12 |
| Net investment income (loss) | 0.44 | 0.32 | 0.07 | 0.32 | 0.50 |
| Portfolio turnover | 35 | 28 | 35 | 46 | 37 |
| Net assets at end of period (000 omitted) | $84,173 | $70,293 | $76,684 | $54,818 | $46,744 |
| Supplemental Ratios (%): | | | | | |
| Ratios of expenses to average net assets after expense reductions excluding short sale expenses and interest expense and fees | 1.06 | 1.06 | 1.06 | 1.08 | 1.08 |
| (d) | Per share data is based on average shares outstanding. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS Core Equity Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Core Equity Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities and equity securities sold short, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Equity securities sold short, for which there were no sales reported that day, are generally valued at the last quoted daily ask quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets;
MFS Core Equity Portfolio
Notes to Financial Statements - continued
the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2023 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities | $259,122,419 | $— | $— | $259,122,419 |
| Mutual Funds | 1,937,705 | — | — | 1,937,705 |
| Total | $261,060,124 | $— | $— | $261,060,124 |
| Securities Sold Short | $(263,324) | $— | $— | $(263,324) |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Short Sales — The fund entered into short sales whereby it sells a security it does not own in anticipation of a decline in the value of that security. The fund will realize a gain if the security price decreases and a loss if the security price increases between the date of the short sale and the date on which the fund replaces the borrowed security. Losses from short sales can exceed the proceeds of the security sold; and they can also exceed the potential loss from an ordinary buy and sell transaction. The amount of any premium, dividends, or interest the fund may be required to pay in connection with a short sale will be recognized as a fund expense. During the year ended December 31, 2023, this expense amounted to $19,786.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund’s Portfolio of Investments, with a fair value of $204,548. The fair value of the fund’s investment securities on loan is presented gross in the Statement of Assets and Liabilities. These loans were collateralized by U.S. Treasury Obligations of $210,551 held by the custodian. The collateral on securities loaned exceeded the value of securities on loan at period end. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency
MFS Core Equity Portfolio
Notes to Financial Statements - continued
obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Investment transactions are recorded on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/23 | Year ended
12/31/22 |
| Ordinary income (including any short-term capital gains) | $1,142,514 | $8,251,087 |
| Long-term capital gains | 11,744,536 | 19,310,083 |
| Total distributions | $12,887,050 | $27,561,170 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/23 | |
| Cost of investments | $167,652,840 |
| Gross appreciation | 98,997,630 |
| Gross depreciation | (5,853,670) |
| Net unrealized appreciation (depreciation) | $93,143,960 |
| Undistributed ordinary income | 1,477,451 |
| Undistributed long-term capital gain | 12,098,914 |
| Other temporary differences | (12) |
| Total distributable earnings (loss) | $106,720,313 |
MFS Core Equity Portfolio
Notes to Financial Statements - continued
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/23 | | Year
ended
12/31/22 |
| Initial Class | $8,841,255 | | $19,378,556 |
| Service Class | 4,045,795 | | 8,182,614 |
| Total | $12,887,050 | | $27,561,170 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.75% |
| In excess of $1 billion and up to $2.5 billion | 0.65% |
| In excess of $2.5 billion | 0.60% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this management fee reduction amounted to $30,788, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.74% of the fund's average daily net assets.
For the period from January 1, 2023 through July 31, 2023, the investment adviser had agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses (such as short sale dividend and interest expenses incurred in connection with the fund’s investment activity), such that total annual operating expenses did not exceed 0.81% of average daily net assets for the Initial Class shares and 1.06% of average daily net assets for the Service Class shares. This written agreement terminated on July 31, 2023. For the period from January 1, 2023 through July 31, 2023, this reduction amounted to $4,812, which is included in the reduction of total expenses in the Statements of Operations. Effective August 1, 2023, the investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses (such as short sale dividend and interest expenses incurred in connection with the fund's investment activity), such that total annual operating expenses do not exceed 0.80% of average daily net assets for the Initial Class shares and 1.05% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2025. For the period from August 1, 2023 through December 31, 2023, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares as well as shareholder servicing and account maintenance activities. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. The distribution and/or service fees are computed daily and paid monthly.
MFS Core Equity Portfolio
Notes to Financial Statements - continued
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2023, the fee was $2,801, which equated to 0.0012% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2023, these costs amounted to $811.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is computed daily and paid monthly. The administrative services fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.0187% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
During the year ended December 31, 2023, pursuant to a policy adopted by the Board of Trustees and designed to comply with Rule 17a-7 under the Investment Company Act of 1940 (the “Act”) and relevant guidance, the fund engaged in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) which amounted to $265,573 and $375,170, respectively. The sales transactions resulted in net realized gains (losses) of $(222,003).
The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the year ended December 31, 2023, this reimbursement amounted to $8,267, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the year ended December 31, 2023, purchases and sales of investments, other than short sales and short-term obligations, aggregated $83,391,582 and $92,854,338, respectively.
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 467,772 | $12,112,634 | | 282,734 | $7,431,003 |
| Service Class | 337,500 | 8,438,455 | | 567,647 | 14,808,466 |
| | 805,272 | $20,551,089 | | 850,381 | $22,239,469 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 351,122 | $8,841,255 | | 757,271 | $19,378,556 |
| Service Class | 163,533 | 4,045,795 | | 325,094 | 8,182,614 |
| | 514,655 | $12,887,050 | | 1,082,365 | $27,561,170 |
| Shares reacquired | | | | | |
| Initial Class | (860,208) | $(22,075,938) | | (987,891) | $(26,358,332) |
| Service Class | (415,312) | (10,520,540) | | (287,076) | (7,663,232) |
| | (1,275,520) | $(32,596,478) | | (1,274,967) | $(34,021,564) |
MFS Core Equity Portfolio
Notes to Financial Statements - continued
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Net change | | | | | |
| Initial Class | (41,314) | $(1,122,049) | | 52,114 | $451,227 |
| Service Class | 85,721 | 1,963,710 | | 605,665 | 15,327,848 |
| | 44,407 | $841,661 | | 657,779 | $15,779,075 |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 14, 2024 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2023, the fund’s commitment fee and interest expense were $1,157 and $0, respectively, and are included in “Interest expense and fees” in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $3,266,354 | $46,610,222 | $47,937,945 | $(58) | $(868) | $1,937,705 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $102,156 | $— |
MFS Core Equity Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Core Equity Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Core Equity Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 2024
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Core Equity Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2024, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 57) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 69) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 72) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 69) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 68) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 68) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 62) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 67) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 67) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 66) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 55) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
MFS Core Equity Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
John W. Clark, Jr. (k)
(age 56) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 55) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 56) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 47) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022) |
Amanda S. Mooradian (k)
(age 44) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 53) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 53) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
James O. Yost (k)
(age 63) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Caroselli, Jones and Otis are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
MFS Core Equity Portfolio
Trustees and Officers - continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Congress Street, Suite 1
Boston, MA 02114-2016 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
| Joseph MacDougall | |
MFS Core Equity Portfolio
Board Review of Investment Advisory Agreement
MFS Core Equity Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2023 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2022 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2022, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 2nd quintile for the one-year period and the 3rd quintile for the three-year period ended December 31, 2022 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS Core Equity Portfolio
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each higher than the Broadridge expense group median. The Trustees also noted that MFS has agreed to further reduce the expense limitation for the Fund effective August 1, 2023, which may not be changed without the Trustees’ approval.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2.5 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2023.
MFS Core Equity Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $12,919,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 100.00% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2023
MFS® Corporate Bond Portfolio
MFS® Variable Insurance Trust II
MFS® Corporate Bond Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Corporate Bond Portfolio
Portfolio structure (i)
Fixed income sectors (i)
| Investment Grade Corporates | 78.2% |
| U.S. Treasury Securities | 9.9% |
| High Yield Corporates | 6.4% |
| Emerging Markets Bonds | 3.6% |
| Non-U.S. Government Bonds | 1.5% |
| Commercial Mortgage-Backed Securities | 1.4% |
| Collateralized Debt Obligations | 1.2% |
| Asset-Backed Securities | 0.7% |
| Municipal Bonds | 0.2% |
Issuer country weightings (x)
| United States | 67.6% |
| Canada | 5.8% |
| United Kingdom | 5.1% |
| Australia | 4.1% |
| Japan | 2.4% |
| Italy | 2.3% |
| Switzerland | 1.9% |
| Bermuda | 1.6% |
| Germany | 1.5% |
| Other Countries | 7.7% |
Portfolio facts
| Average Duration (d) | 7.0 |
| Average Effective Maturity (m) | 10.4 yrs. |
Composition including fixed income credit quality (a)(i)
| AAA | 3.6% |
| AA | 3.5% |
| A | 29.0% |
| BBB | 49.2% |
| BB | 5.8% |
| B | 1.8% |
| CCC | 0.3% |
| C (o) | 0.0% |
| U.S. Government | 5.6% |
| Not Rated | 4.3% |
| Cash & Cash Equivalents | 1.1% |
| Other | (4.2)% |
| (a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities and fixed income derivatives that have not been rated by any rating agency. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
| (d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move. The Average Duration calculation reflects the impact of the equivalent exposure of derivative positions, if any. |
MFS Corporate Bond Portfolio
Portfolio Composition - continued
| (i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
| (m) | In determining each instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening feature (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents. |
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of December 31, 2023.
The portfolio is actively managed and current holdings may be different.
MFS Corporate Bond Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2023, Initial Class shares of the MFS Corporate Bond Portfolio (fund) provided a total return of 9.11%, while Service Class shares of the fund provided a total return of 8.89%. These compare with a return of 8.18% over the same period for the fund’s benchmark, the Bloomberg U.S. Credit Index.
Market Environment
During the reporting period, central banks around the world had to combat the strongest inflationary pressures in four decades, fueled by the global fiscal response to the pandemic, disrupted supply chains and the dislocations to energy markets stemming from the war in Ukraine. Interest rates rose substantially, but the effects of a tighter monetary policy may not have been fully experienced yet, given that monetary policy works with long and variable lags. Strains resulting from the abrupt tightening of monetary policy began to affect some parts of the economy, most acutely among small and regional US banks, which suffered from deposit flight as depositors sought higher yields on their savings. Additionally, activity in the US housing sector has slowed as a result of higher mortgage rates. China’s abandonment of its Zero-COVID policy ushered in a brief uptick in economic activity in the world’s second-largest economy in early 2023, although its momentum soon stalled as the focus turned to the country’s highly indebted property development sector. In developed markets, consumer demand for services remained stronger than the demand for goods.
Early on, policymakers found themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, central banks focused on controlling price pressures while also confronting increasing financial stability concerns. Central banks had to juggle achieving their inflation mandates while using macroprudential tools (financial policies aimed at safeguarding the stability of the financial system) to keep banking systems liquid, a potentially difficult balancing act, and one that suggested that we may be nearing a peak in policy rates. As inflationary pressures eased toward the end of the period, financial conditions loosened in anticipation of easier monetary policy, boosting the market’s appetite for risk. Rapid advancements in artificial intelligence were a focus for investors.
Normalizing supply chains, low levels of unemployment across developed markets and signs that inflation levels have peaked were supportive factors for the macroeconomic backdrop.
Factors Affecting Performance
During the reporting period, the fund’s overweight allocation to the “BB”, “BBB” and “B” rated(r) credit quality segments contributed to performance relative to the Bloomberg U.S. Credit Index. Strong bond selection within “BBB” and “A” rated bonds also supported the fund’s relative results. From a sector perspective, an underweight exposure and bond selection within both institutional banking and consumer cyclicals sectors further benefited the fund’s relative returns.
Conversely, the fund’s underweight allocation to “A” and “AA” rated bonds held back relative performance. From a sector perspective, an underweight position in the technology sector also weakened relative returns. The fund's yield curve(y) positioning was another factor that weakened relative results.
Respectfully,
Portfolio Manager(s)
Alexander Mackey and John Mitchell
Note to Shareholders: Effective January 20, 2023, John Mitchell was added as a Portfolio Manager and Henry Peabody is no longer a Portfolio Manager of the fund.
| (r) | Securities rated “BBB”, “Baa”, or higher are considered investment grade; securities rated “BB”, “Ba”, or below are considered non-investment grade. Ratings are assigned to underlying securities utilizing ratings from Moody's, Fitch, and Standard & Poor's and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). For securities that are not rated by any of the rating agencies, the security is considered Not Rated. |
| (y) | A yield curve graphically depicts the yields of different maturity bonds of the same credit quality and type; a normal yield curve is upward sloping, with short-term rates lower than long-term rates. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Corporate Bond Portfolio
Performance Summary Through 12/31/23
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/23
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 5/06/1998 | 9.11% | 2.67% | 2.81% |
| Service Class | 8/24/2001 | 8.89% | 2.43% | 2.56% |
Comparative benchmark(s)
| Bloomberg U.S. Credit Index (f) | 8.18% | 2.45% | 2.83% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Bloomberg U.S. Credit Index(a) – a market capitalization-weighted index that measures the performance of publicly issued, SEC-registered, U.S. corporate and specified foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements.
It is not possible to invest directly in an index.
| (a) | Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg's licensors own all proprietary rights in the Bloomberg Indices. Bloomberg neither approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
MFS Corporate Bond Portfolio
Performance Summary – continued
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Corporate Bond Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2023 through December 31, 2023
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2023 through December 31, 2023.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/23 | Ending
Account Value
12/31/23 | Expenses
Paid During
Period (p)
7/01/23-12/31/23 |
| Initial Class | Actual | 0.63% | $1,000.00 | $1,050.62 | $3.26 |
| Hypothetical (h) | 0.63% | $1,000.00 | $1,022.03 | $3.21 |
| Service Class | Actual | 0.88% | $1,000.00 | $1,049.03 | $4.54 |
| Hypothetical (h) | 0.88% | $1,000.00 | $1,020.77 | $4.48 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS Corporate Bond Portfolio
Portfolio of Investments − 12/31/23
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Bonds – 97.7% |
| Aerospace & Defense – 2.7% |
| Boeing Co., 2.196%, 2/04/2026 | | $ | 288,000 | $ 272,127 |
| Boeing Co., 5.15%, 5/01/2030 | | | 473,000 | 481,519 |
| Boeing Co., 5.805%, 5/01/2050 | | | 1,170,000 | 1,211,595 |
| General Dynamics Corp., 3.625%, 4/01/2030 | | | 488,000 | 468,759 |
| L3 Harris Technologies, Inc., 5.4%, 1/15/2027 | | | 373,000 | 380,739 |
| L3 Harris Technologies, Inc., 5.4%, 7/31/2033 | | | 298,000 | 309,844 |
| TransDigm, Inc., 6.875%, 12/15/2030 (n) | | | 621,000 | 639,630 |
| | | | | $3,764,213 |
| Apparel Manufacturers – 0.3% |
| Tapestry, Inc., 7%, 11/27/2026 | | $ | 117,000 | $ 121,292 |
| Tapestry, Inc., 4.125%, 7/15/2027 | | | 95,000 | 90,259 |
| Tapestry, Inc., 3.05%, 3/15/2032 | | | 227,000 | 184,663 |
| | | | | $396,214 |
| Asset-Backed & Securitized – 3.2% |
| 3650R Commercial Mortgage Trust, 2021-PF1, “XA”, 1.018%, 11/15/2054 (i) | | $ | 3,832,574 | $ 188,578 |
| ACREC 2021-FL1 Ltd., “A”, FLR, 6.622% ((SOFR - 1mo. + 0.11448%) + 1.15%), 10/16/2036 (n) | | | 615,856 | 603,321 |
| Arbor Realty Trust, Inc., CLO, 2021-FL4, “AS”, FLR, 7.176% ((SOFR - 1mo. + 0.11448%) + 1.7%), 11/15/2036 (n) | | | 175,000 | 172,406 |
| ARI Fleet Lease Trust, 2023-A, “A2”, 5.41%, 2/17/2032 (n) | | | 156,477 | 156,177 |
| Bayview Financial Revolving Mortgage Loan Trust, FLR, 7.071% ((SOFR - 1mo. + 0.11448%) + 1.6%), 12/28/2040 (n) | | | 38,700 | 56,901 |
| BDS 2021-FL7 Ltd., “B”, FLR, 6.972% ((SOFR - 1mo. + 0.11448%) + 1.5%), 6/16/2036 (n) | | | 163,500 | 160,023 |
| Benchmark 2021-B27 Mortgage Trust, “XA”, 1.26%, 7/15/2054 (i) | | | 7,007,351 | 432,635 |
| JPMorgan Chase Commercial Mortgage Securities Corp., 5.707%, 7/15/2042 (n) | | | 5,671 | 4,937 |
| KREF 2018-FT1 Ltd., “A”, FLR, 6.516% ((SOFR - 1mo. + 0.11448%) + 1.07%), 2/15/2039 (n) | | | 288,000 | 280,241 |
| KREF 2018-FT1 Ltd., “AS”, FLR, 6.746% ((SOFR - 1mo. + 0.11448%) + 1.3%), 2/15/2039 (n) | | | 316,500 | 301,005 |
| LAD Auto Receivables Trust, 2023-2A, “A2”, 5.93%, 6/15/2027 (n) | | | 358,427 | 358,680 |
| MF1 2022-FL8 Ltd., “A”, FLR, 6.706% (SOFR - 1mo. + 1.35%), 2/19/2037 (n) | | | 496,852 | 487,355 |
| PFP III 2021-8 Ltd., “A”, FLR, 6.476% ((SOFR - 1mo. + 0.11448%) + 1%), 8/09/2037 (n) | | | 161,175 | 158,804 |
| PFP III 2021-8 Ltd., “AS”, FLR, 6.702% ((SOFR - 1mo. + 0.11448%) + 1.25%), 8/09/2037 (n) | | | 603,000 | 582,644 |
| ReadyCap Commercial Mortgage Trust, 2021-FL5, “A”, FLR, 6.47% ((SOFR - 1mo. + 0.11448%) + 1%), 4/25/2038 (z) | | | 177,628 | 175,930 |
| SBNA Auto Lease Trust, 2023-A, “A2”, 6.27%, 4/20/2026 (n) | | | 282,000 | 283,945 |
| Toyota Lease Owner Trust, 2023-A, “A2”, 5.3%, 8/20/2025 (n) | | | 104,344 | 104,182 |
| | | | | $4,507,764 |
| Automotive – 0.6% |
| Volkswagen Group of America Finance LLC, 6.2%, 11/16/2028 (n) | | $ | 824,000 | $ 864,432 |
| Broadcasting – 2.2% |
| Discovery Communications LLC, 5.3%, 5/15/2049 | | $ | 600,000 | $ 515,140 |
| Discovery Communications LLC, 4%, 9/15/2055 | | | 300,000 | 213,462 |
| Prosus N.V., 4.193%, 1/19/2032 | | | 200,000 | 172,514 |
| Prosus N.V., 3.832%, 2/08/2051 (n) | | | 437,000 | 274,466 |
| Walt Disney Co., 3.5%, 5/13/2040 | | | 961,000 | 808,755 |
| Walt Disney Co., 4.75%, 9/15/2044 | | | 72,000 | 68,803 |
| Walt Disney Co., 3.6%, 1/13/2051 | | | 430,000 | 345,627 |
| WarnerMedia Holdings, Inc., 4.279%, 3/15/2032 | | | 238,000 | 217,819 |
| WarnerMedia Holdings, Inc., 5.391%, 3/15/2062 | | | 498,000 | 426,483 |
| | | | | $3,043,069 |
| Brokerage & Asset Managers – 1.7% |
| Brookfield Finance, Inc., 2.34%, 1/30/2032 | | $ | 665,000 | $ 531,443 |
| Charles Schwab Corp., 5.643% to 5/19/2028, FLR (SOFR - 1 day + 2.210%) to 5/19/2029 | | | 246,000 | 252,350 |
| Charles Schwab Corp., 1.95%, 12/01/2031 | | | 248,000 | 198,933 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Brokerage & Asset Managers – continued |
| Charles Schwab Corp., 6.136% to 8/24/2033, FLR (SOFR - 1 day + 2.01%) to 8/24/2034 | | $ | 363,000 | $ 382,629 |
| LPL Holdings, Inc., 4.625%, 11/15/2027 (n) | | | 407,000 | 393,094 |
| LPL Holdings, Inc., 6.75%, 11/17/2028 | | | 237,000 | 252,647 |
| LPL Holdings, Inc., 4.375%, 5/15/2031 (n) | | | 392,000 | 354,968 |
| | | | | $2,366,064 |
| Building – 0.7% |
| Summit Materials LLC/Summit Materials Finance Corp., 7.25%, 1/15/2031 (n) | | $ | 190,000 | $ 200,204 |
| Vulcan Materials Co., 3.5%, 6/01/2030 | | | 610,000 | 567,380 |
| Vulcan Materials Co., 4.5%, 6/15/2047 | | | 162,000 | 145,294 |
| | | | | $912,878 |
| Business Services – 0.9% |
| Fiserv, Inc., 2.25%, 6/01/2027 | | $ | 746,000 | $ 689,831 |
| Fiserv, Inc., 4.4%, 7/01/2049 | | | 364,000 | 320,833 |
| Visa, Inc., 3.65%, 9/15/2047 | | | 314,000 | 265,003 |
| | | | | $1,275,667 |
| Cable TV – 1.5% |
| Charter Communications Operating LLC/Charter Communications Operating Capital Corp., 5.375%, 5/01/2047 | | $ | 736,000 | $ 625,470 |
| Comcast Corp., 2.8%, 1/15/2051 | | | 409,000 | 272,556 |
| Comcast Corp., 2.887%, 11/01/2051 | | | 310,000 | 209,700 |
| Cox Communications, Inc., 5.7%, 6/15/2033 (n) | | | 525,000 | 546,110 |
| Cox Communications, Inc., 4.5%, 6/30/2043 (n) | | | 104,000 | 87,819 |
| Sirius XM Radio, Inc., 4.125%, 7/01/2030 (n) | | | 455,000 | 405,440 |
| | | | | $2,147,095 |
| Chemicals – 0.3% |
| RPM International, Inc., 4.55%, 3/01/2029 | | $ | 450,000 | $ 443,382 |
| Computer Software – 1.2% |
| Cisco Systems, Inc., 5.5%, 1/15/2040 | | $ | 262,000 | $ 278,896 |
| Microsoft Corp., 2.525%, 6/01/2050 | | | 549,000 | 374,788 |
| Microsoft Corp., 2.5%, 9/15/2050 (n) | | | 487,000 | 328,812 |
| Oracle Corp., 5.55%, 2/06/2053 | | | 475,000 | 475,132 |
| VeriSign, Inc., 4.75%, 7/15/2027 | | | 244,000 | 241,698 |
| | | | | $1,699,326 |
| Computer Software - Systems – 0.4% |
| Apple, Inc., 2.7%, 8/05/2051 | | $ | 727,000 | $ 499,898 |
| Conglomerates – 1.5% |
| nVent Finance S.à r.l., 5.65%, 5/15/2033 | | $ | 408,000 | $ 414,488 |
| Regal Rexnord Corp., 6.05%, 4/15/2028 (n) | | | 348,000 | 352,272 |
| Regal Rexnord Corp., 6.3%, 2/15/2030 (n) | | | 325,000 | 333,421 |
| Regal Rexnord Corp., 6.4%, 4/15/2033 (n) | | | 303,000 | 315,808 |
| Westinghouse Air Brake Technologies Corp., 3.2%, 6/15/2025 | | | 467,000 | 451,447 |
| Westinghouse Air Brake Technologies Corp., 4.7%, 9/15/2028 | | | 233,000 | 230,403 |
| | | | | $2,097,839 |
| Consumer Products – 1.2% |
| Kenvue, Inc., 5%, 3/22/2030 | | $ | 363,000 | $ 374,665 |
| Kenvue, Inc., 5.1%, 3/22/2043 | | | 323,000 | 335,066 |
| Kenvue, Inc., 5.05%, 3/22/2053 | | | 299,000 | 309,343 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Consumer Products – continued |
| Mattel, Inc., 3.75%, 4/01/2029 (n) | | $ | 751,000 | $ 685,958 |
| | | | | $1,705,032 |
| Consumer Services – 1.0% |
| Booking Holdings, Inc., 3.6%, 6/01/2026 | | $ | 536,000 | $ 523,494 |
| CBRE Group, Inc., 5.95%, 8/15/2034 | | | 859,000 | 902,433 |
| | | | | $1,425,927 |
| Containers – 0.1% |
| Berry Global, Inc., 5.5%, 4/15/2028 (n) | | $ | 77,000 | $ 77,844 |
| Electronics – 1.4% |
| Intel Corp., 5.7%, 2/10/2053 | | $ | 545,000 | $ 589,205 |
| Lam Research Corp., 1.9%, 6/15/2030 | | | 151,000 | 129,820 |
| Lam Research Corp., 4.875%, 3/15/2049 | | | 292,000 | 290,525 |
| NXP B.V./NXP Funding LLC/NXP USA, Inc., 2.5%, 5/11/2031 | | | 451,000 | 383,152 |
| NXP B.V./NXP Funding LLC/NXP USA, Inc., 5%, 1/15/2033 | | | 108,000 | 108,167 |
| Sensata Technologies, Inc., 4.375%, 2/15/2030 (n) | | | 450,000 | 417,358 |
| | | | | $1,918,227 |
| Emerging Market Quasi-Sovereign – 0.2% |
| Qatar Petroleum, 3.125%, 7/12/2041 (n) | | $ | 451,000 | $ 346,154 |
| Emerging Market Sovereign – 0.3% |
| United Mexican States, 6.338%, 5/04/2053 | | $ | 476,000 | $ 484,578 |
| Energy - Independent – 2.1% |
| EQT Corp., 5.7%, 4/01/2028 | | $ | 112,000 | $ 113,660 |
| EQT Corp., 3.625%, 5/15/2031 (n) | | | 382,000 | 341,153 |
| Occidental Petroleum Corp., 6.125%, 1/01/2031 | | | 245,000 | 254,356 |
| Occidental Petroleum Corp., 4.4%, 4/15/2046 | | | 233,000 | 189,685 |
| Permian Resources Operating LLC, 7%, 1/15/2032 (n) | | | 408,000 | 420,922 |
| Pioneer Natural Resources Co., 5.1%, 3/29/2026 | | | 417,700 | 420,744 |
| Pioneer Natural Resources Co., 1.9%, 8/15/2030 | | | 94,000 | 79,807 |
| Pioneer Natural Resources Co., 2.15%, 1/15/2031 | | | 684,000 | 581,091 |
| Santos Finance Ltd., 6.875%, 9/19/2033 (n) | | | 539,000 | 571,622 |
| | | | | $2,973,040 |
| Energy - Integrated – 0.9% |
| BP Capital Markets America, Inc., 1.749%, 8/10/2030 | | $ | 297,000 | $ 251,500 |
| BP Capital Markets America, Inc., 4.812%, 2/13/2033 | | | 357,000 | 359,933 |
| BP Capital Markets America, Inc., 3.001%, 3/17/2052 | | | 427,000 | 299,539 |
| Eni S.p.A., 4.75%, 9/12/2028 (n) | | | 361,000 | 360,866 |
| | | | | $1,271,838 |
| Entertainment – 0.4% |
| Royal Caribbean Cruises Ltd., 4.25%, 7/01/2026 (n) | | $ | 566,000 | $ 546,685 |
| Financial Institutions – 1.3% |
| AerCap Ireland Capital DAC/AerCap Global Aviation Trust, 3.65%, 7/21/2027 | | $ | 484,000 | $ 459,877 |
| Avolon Holdings Funding Ltd., 4.375%, 5/01/2026 (n) | | | 208,000 | 201,259 |
| Avolon Holdings Funding Ltd., 2.75%, 2/21/2028 (n) | | | 306,000 | 271,832 |
| Global Aircraft Leasing Co. Ltd., 6.5% (6.5% Cash or 7.25% PIK), 9/15/2024 (n)(p) | | | 505,000 | 474,700 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Financial Institutions – continued |
| Macquarie AirFinance Holdings Ltd., 8.125%, 3/30/2029 (n) | | $ | 395,000 | $ 412,863 |
| | | | | $1,820,531 |
| Food & Beverages – 4.9% |
| Anheuser-Busch InBev Worldwide, Inc., 4.375%, 4/15/2038 | | $ | 177,000 | $ 167,853 |
| Anheuser-Busch InBev Worldwide, Inc., 4.75%, 4/15/2058 | | | 444,000 | 420,964 |
| Bacardi-Martini B.V., 5.4%, 6/15/2033 (n) | | | 669,000 | 672,345 |
| Constellation Brands, Inc., 2.25%, 8/01/2031 | | | 330,000 | 277,288 |
| Constellation Brands, Inc., 4.75%, 5/09/2032 | | | 437,000 | 435,315 |
| Constellation Brands, Inc., 3.75%, 5/01/2050 | | | 242,000 | 192,864 |
| Diageo Capital PLC, 2.375%, 10/24/2029 | | | 364,000 | 327,708 |
| Diageo Capital PLC, 5.625%, 10/05/2033 | | | 449,000 | 484,278 |
| JBS USA Lux S.A./JBS USA Food Co./JBS USA Finance, Inc., 5.5%, 1/15/2030 | | | 165,000 | 162,158 |
| JBS USA Lux S.A./JBS USA Food Co./JBS USA Finance, Inc., 3.75%, 12/01/2031 | | | 372,000 | 320,533 |
| JDE Peet's N.V., 0.8%, 9/24/2024 (n) | | | 327,000 | 314,453 |
| JM Smucker Co., 6.5%, 11/15/2053 | | | 493,000 | 568,548 |
| Kraft Heinz Foods Co., 4.875%, 10/01/2049 | | | 149,000 | 141,180 |
| Kraft Heinz Foods Co., 5.5%, 6/01/2050 | | | 648,000 | 667,899 |
| Mars, Inc., 4.55%, 4/20/2028 (n) | | | 685,000 | 688,641 |
| SYSCO Corp., 2.4%, 2/15/2030 | | | 148,000 | 130,548 |
| SYSCO Corp., 2.45%, 12/14/2031 | | | 284,000 | 239,651 |
| SYSCO Corp., 4.45%, 3/15/2048 | | | 320,000 | 280,590 |
| Viterra Finance B.V., 3.2%, 4/21/2031 (n) | | | 312,000 | 268,872 |
| | | | | $6,761,688 |
| Gaming & Lodging – 1.2% |
| Marriott International, Inc., 4%, 4/15/2028 | | $ | 211,000 | $ 204,240 |
| Marriott International, Inc., 2.85%, 4/15/2031 | | | 730,000 | 631,796 |
| VICI Properties LP, REIT, 4.75%, 2/15/2028 | | | 291,000 | 284,878 |
| VICI Properties LP/VICI Note Co., Inc., 4.25%, 12/01/2026 (n) | | | 228,000 | 219,418 |
| Wynn Macau Ltd., 5.5%, 10/01/2027 (n) | | | 272,000 | 256,937 |
| | | | | $1,597,269 |
| Insurance – 0.8% |
| Corebridge Financial, Inc., 3.9%, 4/05/2032 | | $ | 686,000 | $ 620,121 |
| Corebridge Financial, Inc., 4.35%, 4/05/2042 | | | 96,000 | 81,365 |
| Equitable Holdings, Inc., 5.594%, 1/11/2033 | | | 442,000 | 453,845 |
| | | | | $1,155,331 |
| Insurance - Health – 1.1% |
| Humana, Inc., 4.95%, 10/01/2044 | | $ | 291,000 | $ 275,130 |
| Humana, Inc., 5.5%, 3/15/2053 | | | 117,000 | 121,437 |
| UnitedHealth Group, Inc., 5.3%, 2/15/2030 | | | 262,000 | 274,165 |
| UnitedHealth Group, Inc., 4.625%, 7/15/2035 | | | 383,000 | 384,890 |
| UnitedHealth Group, Inc., 5.875%, 2/15/2053 | | | 391,000 | 442,841 |
| | | | | $1,498,463 |
| Insurance - Property & Casualty – 1.7% |
| American International Group, Inc., 5.125%, 3/27/2033 | | $ | 412,000 | $ 418,090 |
| Arthur J. Gallagher & Co., 6.5%, 2/15/2034 | | | 391,000 | 427,412 |
| Arthur J. Gallagher & Co., 6.75%, 2/15/2054 | | | 378,000 | 441,043 |
| Fairfax Financial Holdings Ltd., 3.375%, 3/03/2031 | | | 345,000 | 303,174 |
| Fairfax Financial Holdings Ltd., 5.625%, 8/16/2032 | | | 177,000 | 176,828 |
| RenaissanceRe Holdings Ltd., 5.75%, 6/05/2033 | | | 560,000 | 564,238 |
| | | | | $2,330,785 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| International Market Quasi-Sovereign – 0.8% |
| NBN Co. Ltd. (Commonwealth of Australia), 5.75%, 10/06/2028 (n) | | $ | 499,000 | $ 518,958 |
| Ontario Teachers' Cadillac Fairview Properties, 2.5%, 10/15/2031 (n) | | | 699,000 | 564,781 |
| | | | | $1,083,739 |
| International Market Sovereign – 0.7% |
| Government of Bermuda, 5%, 7/15/2032 (n) | | $ | 983,000 | $ 975,136 |
| Machinery & Tools – 1.4% |
| Ashtead Capital, Inc., 5.55%, 5/30/2033 (n) | | $ | 400,000 | $ 395,781 |
| Ashtead Capital, Inc., 5.95%, 10/15/2033 (n) | | | 400,000 | 407,520 |
| CNH Industrial Capital LLC, 5.5%, 1/12/2029 | | | 481,000 | 495,715 |
| CNH Industrial N.V., 3.85%, 11/15/2027 | | | 701,000 | 675,284 |
| | | | | $1,974,300 |
| Major Banks – 16.0% |
| Bank of America Corp., 4.376% to 4/27/2027, FLR (SOFR - 1 day + 1.58%) to 4/27/2028 | | $ | 679,000 | $ 663,586 |
| Bank of America Corp., 3.419% to 12/20/2027, FLR ((SOFR - 3mo. + 0.26161%) + 1.04%) to 12/20/2028 | | | 351,000 | 330,617 |
| Bank of America Corp., 5.819% to 9/15/2028, FLR (SOFR - 1 day + 1.57%) to 9/15/2029 | | | 501,000 | 517,169 |
| Bank of America Corp., 2.687% to 4/22/2031, FLR (SOFR - 1 day + 1.32%) to 4/22/2032 | | | 260,000 | 219,552 |
| Bank of America Corp., 5.872% to 9/15/2033, FLR (SOFR - 1 day + 1.84%) to 9/15/2034 | | | 493,000 | 516,058 |
| Bank of New York Mellon Corp., 5.802% to 10/25/2027, FLR (SOFR - 1 day + 1.802%) to 10/25/2028 | | | 193,000 | 200,099 |
| Bank of New York Mellon Corp., 5.834% to 10/25/2032, FLR (SOFR - 1 day + 2.074%) to 10/25/2033 | | | 188,000 | 199,310 |
| Barclays PLC, 2.894% to 11/24/2031, FLR (CMT - 1yr. + 1.3%) to 11/24/2032 | | | 651,000 | 533,547 |
| Capital One Financial Corp., 6.312% to 6/08/2028, FLR (SOFR - 1 day + 2.640%) to 6/08/2029 | | | 262,000 | 268,788 |
| Capital One Financial Corp., 6.377% to 6/08/2033, FLR (SOFR - 1 day + 2.860%) to 6/08/2034 | | | 118,000 | 121,445 |
| Commonwealth Bank of Australia, 3.61% to 9/12/2029, FLR (CMT - 1yr. + 2.05%) to 9/12/2034 (n) | | | 631,000 | 562,928 |
| Commonwealth Bank of Australia, 3.305%, 3/11/2041 (n) | | | 280,000 | 202,746 |
| Credit Agricole S.A., 1.247% to 1/26/2026, FLR (SOFR - 1 day + 0.89162%) to 1/26/2027 (n) | | | 888,000 | 817,555 |
| Deutsche Bank AG, 7.079% to 2/10/2033, FLR (SOFR - 1 day + 3.65%) to 2/10/2034 | | | 483,000 | 496,691 |
| HSBC Holdings PLC, 2.871% to 11/22/2031, FLR (SOFR - 1 day + 1.41%) to 11/22/2032 | | | 838,000 | 696,200 |
| Huntington Bancshares, Inc., 6.208% to 8/21/2028, FLR (SOFR - 1 day + 2.02%) to 8/21/2029 | | | 407,000 | 419,670 |
| JPMorgan Chase & Co., 6.07% to 10/22/2026, FLR (SOFR - 1 day + 1.33%) to 10/22/2027 | | | 624,000 | 641,916 |
| JPMorgan Chase & Co., 4.323% to 4/26/2027, FLR (SOFR - 1 day + 1.56%) to 4/26/2028 | | | 762,000 | 750,674 |
| JPMorgan Chase & Co., 2.545% to 11/08/2031, FLR (SOFR - 1 day + 1.18%) to 11/08/2032 | | | 1,244,000 | 1,037,967 |
| Mitsubishi UFJ Financial Group, Inc., 5.719% to 2/20/2025, FLR (CMT - 1yr. + 1.08%) to 2/20/2026 | | | 785,000 | 788,358 |
| Mitsubishi UFJ Financial Group, Inc., 1.64% to 10/13/2026, FLR (CMT - 1yr. + 0.67%) to 10/13/2027 | | | 423,000 | 385,119 |
| Mitsubishi UFJ Financial Group, Inc., 2.494% to 10/13/2031, FLR (CMT - 1yr. + 0.97%) to 10/13/2032 | | | 332,000 | 278,433 |
| Mizuho Financial Group, 5.754%, 5/27/2034 | | | 464,000 | 482,198 |
| Morgan Stanley, 0.985% to 12/10/2025, FLR (SOFR - 1 day + 0.72%) to 12/10/2026 | | | 935,000 | 860,221 |
| Morgan Stanley, 5.449% to 7/20/2028, FLR (SOFR - 1 day + 1.63%) to 7/20/2029 | | | 235,000 | 239,454 |
| Morgan Stanley, 4.431% to 1/23/2029, FLR ((SOFR - 3mo. + 0.26161%) + 1.628%) to 1/23/2030 | | | 277,000 | 269,792 |
| Morgan Stanley, 3.622% to 4/01/2030, FLR (SOFR - 1 day + 3.12%) to 4/01/2031 | | | 150,000 | 138,184 |
| Morgan Stanley, 5.424% to 7/21/2033, FLR (SOFR - 1 day + 1.88%) to 7/21/2034 | | | 268,000 | 271,987 |
| National Australia Bank Ltd., 3.347% to 1/12/2032, FLR (CMT - 5yr. + 1.7%) to 1/12/2037 (n) | | | 673,000 | 558,494 |
| Nationwide Building Society, 6.557% to 10/18/2026, FLR (SOFR - 1 day + 1.91%) to 10/18/2027 (n) | | | 412,000 | 426,434 |
| NatWest Group PLC, 5.847% to 3/02/2026, FLR (CMT - 1yr. + 1.35%) to 3/02/2027 | | | 298,000 | 300,494 |
| Nordea Bank Abp, 1.5%, 9/30/2026 (n) | | | 721,000 | 657,215 |
| Royal Bank of Canada, 2.3%, 11/03/2031 | | | 646,000 | 544,532 |
| Royal Bank of Canada, 5%, 2/01/2033 | | | 328,000 | 333,543 |
| Sumitomo Mitsui Financial Group, Inc., 1.71%, 1/12/2031 | | | 854,000 | 689,382 |
| Sumitomo Mitsui Trust Bank Ltd., 5.65%, 3/09/2026 (n) | | | 636,000 | 644,120 |
| Toronto-Dominion Bank, 4.108%, 6/08/2027 | | | 336,000 | 330,020 |
| Toronto-Dominion Bank, 4.693%, 9/15/2027 | | | 647,000 | 646,931 |
| Toronto-Dominion Bank, 2%, 9/10/2031 | | | 378,000 | 314,394 |
| Toronto-Dominion Bank, 4.456%, 6/08/2032 | | | 142,000 | 137,974 |
| UBS Group AG, 3.126% to 8/13/2029, FLR (LIBOR - 3mo. + 1.468%) to 8/13/2030 (n) | | | 928,000 | 828,066 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Major Banks – continued |
| UBS Group AG, 9.25% to 11/13/2033, FLR (CMT - 5yr. + 4.758%) to 12/30/2099 (n) | | $ | 200,000 | $ 221,653 |
| UBS Group AG, 4.375% to 2/10/2031, FLR (CMT - 1yr. + 3.313%) to 12/31/2164 (n) | | | 900,000 | 710,801 |
| UniCredit S.p.A., 2.569% to 9/22/2025, FLR (CMT - 1yr. + 2.3%) to 9/22/2026 (n) | | | 700,000 | 658,031 |
| UniCredit S.p.A., 1.982% to 6/03/2026, FLR (CMT - 1yr. + 1.2%) to 6/03/2027 (n) | | | 201,000 | 183,793 |
| Wells Fargo & Co., 3.908% to 4/25/2025, FLR (SOFR - 1 day + 1.32%) to 4/25/2026 | | | 547,000 | 536,146 |
| Wells Fargo & Co., 5.574% to 7/25/2028, FLR (SOFR - 1 day + 1.74%) to 7/25/2029 | | | 342,000 | 349,205 |
| Wells Fargo & Co., 3.35% to 3/02/2032, FLR (SOFR - 1 day + 1.5%) to 3/02/2033 | | | 256,000 | 223,595 |
| | | | | $22,205,087 |
| Medical & Health Technology & Services – 3.5% |
| Alcon Finance Corp., 2.6%, 5/27/2030 (n) | | $ | 793,000 | $ 687,394 |
| Alcon Finance Corp., 3.8%, 9/23/2049 (n) | | | 230,000 | 185,370 |
| Becton, Dickinson and Co., 2.823%, 5/20/2030 | | | 139,000 | 124,234 |
| Becton, Dickinson and Co., 4.298%, 8/22/2032 | | | 126,000 | 121,551 |
| Becton, Dickinson and Co., 4.685%, 12/15/2044 | | | 286,000 | 267,258 |
| CVS Health Corp., 5%, 2/20/2026 | | | 268,000 | 269,266 |
| CVS Health Corp., 5.625%, 2/21/2053 | | | 343,000 | 347,667 |
| HCA, Inc., 5.2%, 6/01/2028 | | | 325,000 | 328,335 |
| HCA, Inc., 5.875%, 2/01/2029 | | | 396,000 | 408,771 |
| IQVIA, Inc., 6.25%, 2/01/2029 (n) | | | 394,000 | 411,315 |
| Marin General Hospital, 7.242%, 8/01/2045 | | | 272,000 | 292,356 |
| Quest Diagnostics, Inc., 6.4%, 11/30/2033 | | | 572,000 | 634,403 |
| Thermo Fisher Scientific, Inc., 4.977%, 8/10/2030 | | | 389,000 | 398,514 |
| Thermo Fisher Scientific, Inc., 2%, 10/15/2031 | | | 177,000 | 149,133 |
| Thermo Fisher Scientific, Inc., 2.8%, 10/15/2041 | | | 243,000 | 184,436 |
| | | | | $4,810,003 |
| Medical Equipment – 0.3% |
| Danaher Corp., 2.6%, 10/01/2050 | | $ | 518,000 | $ 347,074 |
| Metals & Mining – 1.8% |
| Anglo American Capital PLC, 2.25%, 3/17/2028 (n) | | $ | 389,000 | $ 346,636 |
| Anglo American Capital PLC, 2.625%, 9/10/2030 (n) | | | 291,000 | 247,548 |
| FMG Resources Ltd., 4.375%, 4/01/2031 (n) | | | 559,000 | 511,213 |
| Glencore Funding LLC, 3.875%, 10/27/2027 (n) | | | 279,000 | 268,171 |
| Glencore Funding LLC, 2.85%, 4/27/2031 (n) | | | 564,000 | 486,337 |
| Novelis Corp., 4.75%, 1/30/2030 (n) | | | 611,000 | 574,614 |
| | | | | $2,434,519 |
| Midstream – 4.1% |
| Columbia Pipelines Holdings Co. LLC, 6.055%, 8/15/2026 (n) | | $ | 105,000 | $ 107,481 |
| Columbia Pipelines Operating Co. LLC, 6.497%, 8/15/2043 (n) | | | 16,000 | 17,135 |
| Columbia Pipelines Operating Co. LLC, 6.544%, 11/15/2053 (n) | | | 608,000 | 669,414 |
| Enbridge, Inc., 5.969%, 3/08/2026 | | | 268,000 | 268,051 |
| Enbridge, Inc., 8.5% to 1/15/2034, FLR (CMT - 5yr. + 4.431%) to 1/15/2054, FLR (CMT - 5yr. + 5.181%) to 1/15/2084 | | | 472,000 | 502,041 |
| Energy Transfer LP, 4%, 10/01/2027 | | | 285,000 | 274,368 |
| Energy Transfer LP, 7.125% to 5/15/2030, FLR (CMT - 5yr. + 5.306%) to 5/15/2171 | | | 524,000 | 482,855 |
| EQM Midstream Partners LP, 4.5%, 1/15/2029 (n) | | | 277,000 | 261,689 |
| Galaxy Pipeline Assets Bidco Ltd., 1.75%, 9/30/2027 (n) | | | 882,609 | 829,699 |
| Plains All American Pipeline LP, 4.65%, 10/15/2025 | | | 474,000 | 468,871 |
| Plains All American Pipeline LP, 3.55%, 12/15/2029 | | | 354,000 | 325,917 |
| Plains All American Pipeline LP, 4.9%, 2/15/2045 | | | 280,000 | 241,396 |
| Targa Resources Corp., 4.2%, 2/01/2033 | | | 374,000 | 343,868 |
| Targa Resources Corp., 4.95%, 4/15/2052 | | | 551,000 | 483,389 |
| Venture Global Calcasieu Pass LLC, 6.25%, 1/15/2030 (n) | | | 140,000 | 139,242 |
| Venture Global Calcasieu Pass LLC, 4.125%, 8/15/2031 (n) | | | 158,000 | 139,199 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Midstream – continued |
| Venture Global LNG, Inc., 9.5%, 2/01/2029 (n) | | $ | 173,000 | $ 183,063 |
| | | | | $5,737,678 |
| Municipals – 0.2% |
| Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., Taxable, “B”, 2.746%, 6/01/2034 | | $ | 340,000 | $ 286,216 |
| Natural Gas - Pipeline – 0.3% |
| APA Infrastructure Ltd., 5%, 3/23/2035 (n) | | $ | 495,000 | $ 468,463 |
| Oils – 0.6% |
| MC Brazil Downstream Trading S.à r.l., 7.25%, 6/30/2031 | | $ | 715,993 | $ 561,159 |
| Puma International Financing S.A., 5%, 1/24/2026 | | | 306,000 | 291,006 |
| | | | | $852,165 |
| Other Banks & Diversified Financials – 2.6% |
| AIB Group PLC, 6.608% to 9/13/2028, FLR (SOFR - 1 day + 2.33%) to 9/13/2029 (n) | | $ | 533,000 | $ 561,490 |
| CaixaBank S.A., 6.84% to 9/13/2033, FLR (SOFR - 1 day + 2.77%) to 9/12/2034 (n) | | | 410,000 | 432,925 |
| Intesa Sanpaolo S.p.A., 7.2%, 11/28/2033 (n) | | | 348,000 | 370,973 |
| Intesa Sanpaolo S.p.A., 7.8%, 11/28/2053 (n) | | | 397,000 | 435,894 |
| M&T Bank Corp., 5.053% to 1/27/2033, FLR (SOFR - 1 day + 1.850%) to 1/27/2034 | | | 147,000 | 139,283 |
| Macquarie Group Ltd., 5.887%, 6/15/2034 (n) | | | 499,000 | 513,874 |
| Macquarie Group Ltd., 6.255% to 12/07/2033, FLR (SOFR - 1 day + 2.303%) to 12/07/2034 (n) | | | 318,000 | 332,054 |
| Manufacturers and Traders Trust Co., 4.7%, 1/27/2028 | | | 265,000 | 257,443 |
| Truist Financial Corp., 7.161% to 10/30/2028, FLR (SOFR - 1 day + 2.446%) to 10/30/2029 | | | 513,000 | 554,057 |
| | | | | $3,597,993 |
| Pharmaceuticals – 2.2% |
| Bayer US Finance LLC, 6.125%, 11/21/2026 (n) | | $ | 200,000 | $ 203,336 |
| Bayer US Finance LLC, 6.25%, 1/21/2029 (n) | | | 447,000 | 456,945 |
| Merck & Co., Inc., 2.75%, 12/10/2051 | | | 296,000 | 203,459 |
| Pfizer Investment Enterprises Pte. Ltd., 4.75%, 5/19/2033 | | | 579,000 | 580,300 |
| Pfizer Investment Enterprises Pte. Ltd., 5.3%, 5/19/2053 | | | 285,000 | 290,952 |
| Pfizer, Inc., 2.55%, 5/28/2040 | | | 296,000 | 217,257 |
| Roche Holdings, Inc., 5.338%, 11/13/2028 (n) | | | 660,000 | 684,498 |
| Roche Holdings, Inc., 5.489%, 11/13/2030 (n) | | | 344,000 | 363,217 |
| | | | | $2,999,964 |
| Pollution Control – 0.9% |
| GFL Environmental, Inc., 3.5%, 9/01/2028 (n) | | $ | 447,000 | $ 413,055 |
| GFL Environmental, Inc., 6.75%, 1/15/2031 (n) | | | 144,000 | 148,360 |
| Waste Management, Inc., 4.625%, 2/15/2033 | | | 621,000 | 622,948 |
| | | | | $1,184,363 |
| Precious Metals & Minerals – 0.7% |
| IAMGOLD Corp., 5.75%, 10/15/2028 (n) | | $ | 437,000 | $ 375,801 |
| Northern Star Resources Ltd. Co., 6.125%, 4/11/2033 (n) | | | 545,000 | 547,550 |
| | | | | $923,351 |
| Railroad & Shipping – 0.6% |
| Burlington Northern Santa Fe, LLC, 5.2%, 4/15/2054 | | $ | 466,000 | $ 484,992 |
| Canadian Pacific Railway Co., 3.1%, 12/02/2051 | | | 558,000 | 403,048 |
| | | | | $888,040 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Real Estate - Office – 1.3% |
| Boston Properties LP, REIT, 3.65%, 2/01/2026 | | $ | 377,000 | $ 362,854 |
| Boston Properties LP, REIT, 4.5%, 12/01/2028 | | | 29,000 | 27,620 |
| Boston Properties LP, REIT, 2.45%, 10/01/2033 | | | 133,000 | 101,210 |
| Boston Properties LP, REIT, 6.5%, 1/15/2034 | | | 214,000 | 225,714 |
| Corporate Office Property LP, REIT, 2%, 1/15/2029 | | | 863,000 | 718,696 |
| Corporate Office Property LP, REIT, 2.75%, 4/15/2031 | | | 531,000 | 429,202 |
| | | | | $1,865,296 |
| Real Estate - Other – 1.8% |
| EPR Properties, REIT, 3.6%, 11/15/2031 | | $ | 447,000 | $ 370,727 |
| Extra Space Storage LP, 5.5%, 7/01/2030 | | | 528,000 | 539,958 |
| LXP Industrial Trust , 2.375%, 10/01/2031 | | | 542,000 | 435,163 |
| Prologis LP, REIT, 5.125%, 1/15/2034 | | | 655,000 | 676,000 |
| W.P. Carey, Inc., REIT, 2.45%, 2/01/2032 | | | 517,000 | 419,940 |
| | | | | $2,441,788 |
| Real Estate - Retail – 0.7% |
| NNN REIT, Inc., 5.6%, 10/15/2033 | | $ | 413,000 | $ 426,340 |
| STORE Capital Corp., REIT, 2.7%, 12/01/2031 | | | 709,000 | 537,033 |
| | | | | $963,373 |
| Retailers – 1.3% |
| Alimentation Couche-Tard, Inc., 3.439%, 5/13/2041 (n) | | $ | 62,000 | $ 46,675 |
| Alimentation Couche-Tard, Inc., 3.8%, 1/25/2050 (n) | | | 543,000 | 412,462 |
| Amazon.com, Inc., 3.6%, 4/13/2032 | | | 481,000 | 458,186 |
| AutoZone, Inc., 4.75%, 8/01/2032 | | | 370,000 | 366,292 |
| Home Depot, Inc., 3.3%, 4/15/2040 | | | 491,000 | 405,601 |
| Home Depot, Inc., 3.9%, 6/15/2047 | | | 83,000 | 71,381 |
| | | | | $1,760,597 |
| Specialty Chemicals – 0.5% |
| International Flavors & Fragrances, Inc., 1.23%, 10/01/2025 (n) | | $ | 260,000 | $ 240,666 |
| International Flavors & Fragrances, Inc., 1.832%, 10/15/2027 (n) | | | 130,000 | 113,917 |
| International Flavors & Fragrances, Inc., 2.3%, 11/01/2030 (n) | | | 169,000 | 139,742 |
| International Flavors & Fragrances, Inc., 3.468%, 12/01/2050 (n) | | | 223,000 | 152,195 |
| | | | | $646,520 |
| Specialty Stores – 0.4% |
| DICK'S Sporting Goods, 3.15%, 1/15/2032 | | $ | 324,000 | $ 276,007 |
| DICK'S Sporting Goods, 4.1%, 1/15/2052 | | | 383,000 | 273,094 |
| | | | | $549,101 |
| Telecommunications - Wireless – 3.7% |
| Cellnex Finance Co. S.A., 3.875%, 7/07/2041 (n) | | $ | 1,009,000 | $ 781,541 |
| Crown Castle, Inc., REIT, 4.45%, 2/15/2026 | | | 656,000 | 646,158 |
| Millicom International Cellular S.A., 4.5%, 4/27/2031 (n) | | | 356,000 | 295,983 |
| Rogers Communications, Inc., 3.8%, 3/15/2032 | | | 425,000 | 391,095 |
| Rogers Communications, Inc., 4.5%, 3/15/2042 | | | 336,000 | 296,390 |
| Rogers Communications, Inc., 4.55%, 3/15/2052 | | | 188,000 | 163,952 |
| T-Mobile USA, Inc., 2.05%, 2/15/2028 | | | 795,000 | 717,320 |
| T-Mobile USA, Inc., 5.05%, 7/15/2033 | | | 418,000 | 421,250 |
| T-Mobile USA, Inc., 3%, 2/15/2041 | | | 850,000 | 636,104 |
| Vodafone Group PLC, 5.625%, 2/10/2053 | | | 414,000 | 417,442 |
| Vodafone Group PLC, 4.125% to 6/04/2031, FLR (CMT - 1yr. + 2.767%) to 6/04/2051, FLR (CMT - 1yr. + 3.517%) to 6/04/2081 | | | 472,000 | 405,215 |
| | | | | $5,172,450 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Tobacco – 0.9% |
| B.A.T. Capital Corp., 6.343%, 8/02/2030 | | $ | 493,000 | $ 517,602 |
| Philip Morris International, Inc., 5.625%, 11/17/2029 | | | 211,000 | 221,256 |
| Philip Morris International, Inc., 5.125%, 2/15/2030 | | | 460,000 | 467,507 |
| | | | | $1,206,365 |
| Transportation - Services – 0.7% |
| Element Fleet Management Corp., 6.271%, 6/26/2026 (n) | | $ | 392,000 | $ 399,154 |
| Element Fleet Management Corp., 6.319%, 12/04/2028 (n) | | | 614,000 | 634,119 |
| | | | | $1,033,273 |
| U.S. Treasury Obligations – 5.6% |
| U.S. Treasury Bonds, 2.375%, 2/15/2042 (f) | | $ | 3,408,000 | $ 2,614,841 |
| U.S. Treasury Bonds, 3.875%, 5/15/2043 | | | 2,463,000 | 2,347,932 |
| U.S. Treasury Bonds, 4.375%, 8/15/2043 | | | 408,000 | 416,479 |
| U.S. Treasury Bonds, 2.875%, 5/15/2052 | | | 1,507,000 | 1,199,831 |
| U.S. Treasury Notes, 5%, 10/31/2025 | | | 526,000 | 531,999 |
| U.S. Treasury Notes, 4.875%, 11/30/2025 | | | 623,000 | 629,449 |
| | | | | $7,740,531 |
| Utilities - Electric Power – 8.3% |
| Adani Transmission Ltd., 4%, 8/03/2026 | | $ | 415,000 | $ 380,763 |
| AEP Transmission Co. LLC, 5.4%, 3/15/2053 | | | 166,000 | 172,492 |
| American Electric Power Co., Inc., 5.699%, 8/15/2025 | | | 294,000 | 295,930 |
| American Electric Power Co., Inc., 5.625%, 3/01/2033 | | | 404,000 | 420,883 |
| American Transmission Systems, Inc., 2.65%, 1/15/2032 (n) | | | 181,000 | 153,133 |
| Berkshire Hathaway Energy Co., 5.15%, 11/15/2043 | | | 120,000 | 118,073 |
| Berkshire Hathaway Energy Co., 4.6%, 5/01/2053 | | | 100,000 | 89,018 |
| CenterPoint Energy, Inc., 2.65%, 6/01/2031 | | | 374,000 | 318,881 |
| Duke Energy Carolinas LLC, 2.45%, 2/01/2030 | | | 709,000 | 626,414 |
| Duke Energy Florida LLC, 6.2%, 11/15/2053 | | | 272,000 | 311,057 |
| Enel Finance International N.V., 4.625%, 6/15/2027 (n) | | | 600,000 | 593,687 |
| Enel Finance International N.V., 2.25%, 7/12/2031 (n) | | | 294,000 | 238,852 |
| Enel Finance International N.V., 7.75%, 10/14/2052 (n) | | | 296,000 | 364,208 |
| FirstEnergy Corp., 4.15%, 7/15/2027 | | | 726,000 | 698,270 |
| FirstEnergy Corp., 2.65%, 3/01/2030 | | | 373,000 | 322,246 |
| FirstEnergy Corp., 3.4%, 3/01/2050 | | | 533,000 | 375,649 |
| Florida Power & Light Co., 2.45%, 2/03/2032 | | | 204,000 | 175,178 |
| Florida Power & Light Co., 3.95%, 3/01/2048 | | | 287,000 | 243,879 |
| Georgia Power Co., 4.7%, 5/15/2032 | | | 416,000 | 414,282 |
| Georgia Power Co., 4.95%, 5/17/2033 | | | 411,000 | 414,316 |
| Georgia Power Co., 5.125%, 5/15/2052 | | | 362,000 | 358,121 |
| Jersey Central Power & Light Co., 2.75%, 3/01/2032 (n) | | | 645,000 | 544,368 |
| MidAmerican Energy Co., 5.85%, 9/15/2054 | | | 488,000 | 539,876 |
| NextEra Energy Capital Holdings, Inc., 6.051%, 3/01/2025 | | | 264,000 | 266,351 |
| NextEra Energy Capital Holdings, Inc., 5.749%, 9/01/2025 | | | 262,000 | 264,479 |
| NextEra Energy Capital Holdings, Inc., 2.44%, 1/15/2032 | | | 73,000 | 61,170 |
| NextEra Energy Capital Holdings, Inc., 3.8% to 3/15/2027, FLR (CMT - 5yr. + 2.547%) to 3/15/2082 | | | 312,000 | 264,271 |
| Pacific Gas & Electric Co., 5.45%, 6/15/2027 | | | 355,000 | 357,860 |
| Pacific Gas & Electric Co., 2.5%, 2/01/2031 | | | 831,000 | 685,484 |
| Southern California Edison Co., 4.5%, 9/01/2040 | | | 273,000 | 245,000 |
| Southern California Edison Co., 3.65%, 2/01/2050 | | | 120,000 | 92,895 |
| Virginia Electric & Power Co., 2.875%, 7/15/2029 | | | 442,000 | 406,047 |
| WEC Energy Group, Inc., 4.75%, 1/09/2026 | | | 759,000 | 756,019 |
| | | | | $11,569,152 |
| Total Bonds (Identified Cost, $140,902,358) | | $135,647,770 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Investment Companies (h) – 1.1% |
| Money Market Funds – 1.1% | |
| MFS Institutional Money Market Portfolio, 5.42% (v) (Identified Cost, $1,504,824) | | | 1,504,809 | $ 1,505,110 |
| Other Assets, Less Liabilities – 1.2% | | 1,664,926 |
| Net Assets – 100.0% | $138,817,806 |
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts. |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $1,505,110 and $135,647,770, respectively. |
| (i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. |
| (n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $43,175,648, representing 31.1% of net assets. |
| (p) | Payment-in-kind (PIK) security for which interest income may be received in additional securities and/or cash. |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
| (z) | Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities: |
| Restricted Securities | Acquisition
Date | Cost | Value |
| ReadyCap Commercial Mortgage Trust, 2021-FL5, “A”, FLR, 6.47% ((SOFR - 1mo. + 0.11448%) + 1%), 4/25/2038 | 2/14/2022 | $176,229 | $175,930 |
| % of Net assets | | | 0.1% |
| The following abbreviations are used in this report and are defined: |
| CLO | Collateralized Loan Obligation |
| CMT | Constant Maturity Treasury |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| LIBOR | London Interbank Offered Rate |
| REIT | Real Estate Investment Trust |
| SOFR | Secured Overnight Financing Rate |
| Derivative Contracts at 12/31/23 |
| Futures Contracts |
| Description | Long/
Short | Currency | Contracts | Notional
Amount | Expiration
Date | Value/Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| Interest Rate Futures | | |
| U.S. Treasury Bond 30 yr | Long | USD | 27 | $3,373,313 | March – 2024 | $239,714 |
| U.S. Treasury Note 2 yr | Long | USD | 53 | 10,913,445 | March – 2024 | 111,968 |
| U.S. Treasury Ultra Bond 30 yr | Long | USD | 12 | 1,603,125 | March – 2024 | 153,311 |
| | | | | | | $504,993 |
| Liability Derivatives |
| Interest Rate Futures | | |
| U.S. Treasury Note 5 yr | Short | USD | 28 | $3,045,656 | March – 2024 | $(68,372) |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Futures Contracts - continued |
| Description | Long/
Short | Currency | Contracts | Notional
Amount | Expiration
Date | Value/Unrealized
Appreciation
(Depreciation) |
| Liability Derivatives - continued |
| Interest Rate Futures - continued |
| U.S. Treasury Ultra Note 10 yr | Short | USD | 59 | $6,962,922 | March – 2024 | $(311,850) |
| | | | | | | $(380,222) |
At December 31, 2023, the fund had liquid securities with an aggregate value of $127,367 to cover any collateral or margin obligations for certain derivative contracts.
See Notes to Financial Statements
MFS Corporate Bond Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/23Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $140,902,358) | $135,647,770 |
| Investments in affiliated issuers, at value (identified cost, $1,504,824) | 1,505,110 |
| Receivables for | |
| Fund shares sold | 146,159 |
| Interest | 1,620,593 |
| Other assets | 972 |
| Total assets | $138,920,604 |
| Liabilities | |
| Payables for | |
| Net daily variation margin on open futures contracts | $1,700 |
| Fund shares reacquired | 32,489 |
| Payable to affiliates | |
| Investment adviser | 4,240 |
| Administrative services fee | 309 |
| Shareholder servicing costs | 5 |
| Distribution and/or service fees | 2,752 |
| Payable for independent Trustees' compensation | 145 |
| Payable for audit and tax fees | 43,517 |
| Accrued expenses and other liabilities | 17,641 |
| Total liabilities | $102,798 |
| Net assets | $138,817,806 |
| Net assets consist of | |
| Paid-in capital | $161,133,146 |
| Total distributable earnings (loss) | (22,315,340) |
| Net assets | $138,817,806 |
| Shares of beneficial interest outstanding | 14,752,560 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $38,486,074 | 4,045,502 | $9.51 |
| Service Class | 100,331,732 | 10,707,058 | 9.37 |
See Notes to Financial Statements
MFS Corporate Bond Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/23 | |
| Net investment income (loss) | |
| Income | |
| Interest | $6,093,291 |
| Dividends from affiliated issuers | 172,183 |
| Other | 44,709 |
| Total investment income | $6,310,183 |
| Expenses | |
| Management fee | $803,702 |
| Distribution and/or service fees | 239,077 |
| Shareholder servicing costs | 1,473 |
| Administrative services fee | 29,608 |
| Independent Trustees' compensation | 4,369 |
| Custodian fee | 10,870 |
| Audit and tax fees | 81,628 |
| Legal fees | 665 |
| Miscellaneous | 26,706 |
| Total expenses | $1,198,098 |
| Reduction of expenses by investment adviser | (109,037) |
| Net expenses | $1,089,061 |
| Net investment income (loss) | $5,221,122 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $(10,340,683) |
| Affiliated issuers | 78 |
| Written options | 38,600 |
| Futures contracts | (155,826) |
| Forward foreign currency exchange contracts | (20,147) |
| Net realized gain (loss) | $(10,477,978) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $16,781,848 |
| Affiliated issuers | (424) |
| Written options | (10,029) |
| Futures contracts | 4,817 |
| Forward foreign currency exchange contracts | 20,549 |
| Net unrealized gain (loss) | $16,796,761 |
| Net realized and unrealized gain (loss) | $6,318,783 |
| Change in net assets from operations | $11,539,905 |
See Notes to Financial Statements
MFS Corporate Bond Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/23 | 12/31/22 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $5,221,122 | $4,872,230 |
| Net realized gain (loss) | (10,477,978) | (11,745,910) |
| Net unrealized gain (loss) | 16,796,761 | (27,612,943) |
| Change in net assets from operations | $11,539,905 | $(34,486,623) |
| Total distributions to shareholders | $(5,107,465) | $(14,438,293) |
| Change in net assets from fund share transactions | $(834,875) | $(24,640,963) |
| Total change in net assets | $5,597,565 | $(73,565,879) |
| Net assets | | |
| At beginning of period | 133,220,241 | 206,786,120 |
| At end of period | $138,817,806 | $133,220,241 |
See Notes to Financial Statements
MFS Corporate Bond Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $9.08 | $11.93 | $12.71 | $11.94 | $10.81 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.38 | $0.31 | $0.31 | $0.36 | $0.39 |
| Net realized and unrealized gain (loss) | 0.42 | (2.23) | (0.49) | 0.89 | 1.19 |
| Total from investment operations | $0.80 | $(1.92) | $(0.18) | $1.25 | $1.58 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.37) | $(0.36) | $(0.36) | $(0.44) | $(0.45) |
| From net realized gain | — | (0.57) | (0.24) | (0.04) | — |
| Total distributions declared to shareholders | $(0.37) | $(0.93) | $(0.60) | $(0.48) | $(0.45) |
| Net asset value, end of period (x) | $9.51 | $9.08 | $11.93 | $12.71 | $11.94 |
| Total return (%) (k)(r)(s)(x) | 9.11 | (16.36) | (1.40) | 10.57 | 14.65 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.72 | 0.71 | 0.69 | 0.70 | 0.69 |
| Expenses after expense reductions | 0.63 | 0.63 | 0.63 | 0.63 | 0.63 |
| Net investment income (loss) | 4.07 | 3.04 | 2.51 | 2.90 | 3.33 |
| Portfolio turnover | 65 | 62 | 55 | 41 | 34 |
| Net assets at end of period (000 omitted) | $38,486 | $39,066 | $53,206 | $59,133 | $57,714 |
| Service Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $8.94 | $11.76 | $12.54 | $11.78 | $10.66 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.35 | $0.28 | $0.27 | $0.32 | $0.35 |
| Net realized and unrealized gain (loss) | 0.42 | (2.20) | (0.48) | 0.89 | 1.19 |
| Total from investment operations | $0.77 | $(1.92) | $(0.21) | $1.21 | $1.54 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.34) | $(0.33) | $(0.33) | $(0.41) | $(0.42) |
| From net realized gain | — | (0.57) | (0.24) | (0.04) | — |
| Total distributions declared to shareholders | $(0.34) | $(0.90) | $(0.57) | $(0.45) | $(0.42) |
| Net asset value, end of period (x) | $9.37 | $8.94 | $11.76 | $12.54 | $11.78 |
| Total return (%) (k)(r)(s)(x) | 8.89 | (16.62) | (1.66) | 10.34 | 14.46 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.97 | 0.96 | 0.94 | 0.95 | 0.94 |
| Expenses after expense reductions | 0.88 | 0.88 | 0.88 | 0.88 | 0.88 |
| Net investment income (loss) | 3.83 | 2.77 | 2.26 | 2.65 | 3.08 |
| Portfolio turnover | 65 | 62 | 55 | 41 | 34 |
| Net assets at end of period (000 omitted) | $100,332 | $94,155 | $153,580 | $169,239 | $161,833 |
See Notes to Financial Statements
MFS Corporate Bond Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS Corporate Bond Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Corporate Bond Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. For put options, the position may be valued at the last daily ask quotation if there are no trades reported during the day. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and
MFS Corporate Bond Portfolio
Notes to Financial Statements - continued
market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments, such as futures contracts. The following is a summary of the levels used as of December 31, 2023 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | $— | $7,740,531 | $— | $7,740,531 |
| Non - U.S. Sovereign Debt | — | 2,889,607 | — | 2,889,607 |
| Municipal Bonds | — | 286,216 | — | 286,216 |
| U.S. Corporate Bonds | — | 78,668,551 | — | 78,668,551 |
| Commercial Mortgage-Backed Securities | — | 1,970,919 | — | 1,970,919 |
| Asset-Backed Securities (including CDOs) | — | 2,536,845 | — | 2,536,845 |
| Foreign Bonds | — | 41,555,101 | — | 41,555,101 |
| Mutual Funds | 1,505,110 | — | — | 1,505,110 |
| Total | $1,505,110 | $135,647,770 | $— | $137,152,880 |
| Other Financial Instruments | | | | |
| Futures Contracts – Assets | $504,993 | $— | $— | $504,993 |
| Futures Contracts – Liabilities | (380,222) | — | — | (380,222) |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives — The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were written options, purchased options, futures contracts, and forward foreign currency exchange contracts. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or
MFS Corporate Bond Portfolio
Notes to Financial Statements - continued
novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily fluctuation in the price for that type of future exceeds the daily limit set by the exchange. The fund's period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at December 31, 2023 as reported in the Statement of Assets and Liabilities:
| | | Fair Value (a) |
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Interest Rate | Futures Contracts | $504,993 | $(380,222) |
(a) Values presented in this table for futures contracts correspond to the values reported in the Portfolio of Investments. Only the current day net variation margin for futures contracts is reported separately within the Statement of Assets and Liabilities.
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended December 31, 2023 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts | Unaffiliated Issuers
(Purchased
Options) | Written
Options |
| Interest Rate | $(155,826) | $— | $— | $— |
| Foreign Exchange | — | (20,147) | — | — |
| Credit | — | — | (145,208) | 38,600 |
| Total | $(155,826) | $(20,147) | $(145,208) | $38,600 |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended December 31, 2023 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts | Unaffiliated Issuers
(Purchased
Options) | Written
Options |
| Interest Rate | $4,817 | $— | $— | $— |
| Foreign Exchange | — | 20,549 | — | — |
| Credit | — | — | 38,569 | (10,029) |
| Total | $4,817 | $20,549 | $38,569 | $(10,029) |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a credit support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted
MFS Corporate Bond Portfolio
Notes to Financial Statements - continued
cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
Written Options — In exchange for a premium, the fund wrote put options on securities for which it anticipated the price would increase. At the time the option was written, the fund believed the premium received exceeded the potential loss that could result from adverse price changes in the options’ underlying securities. In a written option, the fund as the option writer grants the buyer the right to purchase from, or sell to, the fund a specified number of shares or units of a particular security, currency or index at a specified price within a specified period of time.
The premium received is initially recorded as a liability in the Statement of Assets and Liabilities. The option is subsequently marked-to-market daily with the difference between the premium received and the market value of the written option being recorded as unrealized appreciation or depreciation. When a written option expires, the fund realizes a gain equal to the amount of the premium received. The difference between the premium received and the amount paid on effecting a closing transaction is considered a realized gain or loss. When a written put option is exercised, the premium reduces the cost basis of the security purchased by the fund.
At the initiation of the written option contract, for exchange traded options, the fund is required to deposit securities or cash as collateral with the custodian for the benefit of the broker or directly with the clearing broker, based on the type of option. For uncleared options, the fund may post collateral subject to the terms of an ISDA Master Agreement as generally described above if the market value of the options contract moves against it. The fund, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the securities underlying the written option. Losses from writing options can exceed the premium received and can exceed the potential loss from an ordinary buy and sell transaction. Although the fund’s market risk may be significant, the maximum counterparty credit risk to the fund is equal to the market value of any collateral posted to the broker. For uncleared options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above.
Purchased Options — The fund purchased put options for a premium. Purchased put options entitle the holder to sell a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing put options may hedge against an anticipated decline in the value of portfolio securities or currency or decrease the fund's exposure to an underlying instrument.
The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased put options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased put option, the premium paid is offset against the proceeds on the sale of the underlying security or financial instrument in order to determine the realized gain or loss on investments.
Whether or not the option is exercised, the fund's maximum risk of loss from purchasing an option is the amount of premium paid. All option contracts involve credit risk if the counterparty to the option contract fails to perform. For uncleared options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Futures Contracts — The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
MFS Corporate Bond Portfolio
Notes to Financial Statements - continued
The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Forward Foreign Currency Exchange Contracts — The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on forward foreign currency exchange contracts.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Interest payments received in additional securities are recorded on the ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Investment transactions are recorded on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
To mitigate the counterparty credit risk on TBA transactions, mortgage dollar rolls, and other types of forward settling mortgage-backed and asset-backed security transactions, the fund whenever possible enters into a Master Securities Forward Transaction Agreement (“MSFTA”) on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The MSFTA gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the MSFTA, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the MSFTA could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
For mortgage-backed and asset-backed securities traded under a MSFTA, the collateral and margining requirements are contract specific. Collateral amounts across all transactions traded under such agreement are netted and an amount is posted from one party to the other to collateralize such obligations. Cash that has been pledged to cover the fund's collateral or margin obligations under a MSFTA, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments.
MFS Corporate Bond Portfolio
Notes to Financial Statements - continued
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to amortization of premium and accretion of discount of debt securities, wash sale loss deferrals, and derivative transactions.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/23 | Year ended
12/31/22 |
| Ordinary income (including any short-term capital gains) | $5,107,465 | $5,480,909 |
| Long-term capital gains | — | 8,957,384 |
| Total distributions | $5,107,465 | $14,438,293 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/23 | |
| Cost of investments | $142,895,552 |
| Gross appreciation | 2,955,881 |
| Gross depreciation | (8,573,782) |
| Net unrealized appreciation (depreciation) | $(5,617,901) |
| Undistributed ordinary income | 5,275,839 |
| Capital loss carryforwards | (21,973,278) |
| Total distributable earnings (loss) | $(22,315,340) |
As of December 31, 2023, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(6,030,896) |
| Long-Term | (15,942,382) |
| Total | $(21,973,278) |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/23 | | Year
ended
12/31/22 |
| Initial Class | $1,500,029 | | $3,863,350 |
| Service Class | 3,607,436 | | 10,574,943 |
| Total | $5,107,465 | | $14,438,293 |
MFS Corporate Bond Portfolio
Notes to Financial Statements - continued
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.60% |
| In excess of $1 billion | 0.50% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this management fee reduction amounted to $17,133, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.59% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.63% of average daily net assets for the Initial Class shares and 0.88% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this reduction amounted to $91,904, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares as well as shareholder servicing and account maintenance activities. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. The distribution and/or service fees are computed daily and paid monthly.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2023, the fee was $1,080, which equated to 0.0008% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2023, these costs amounted to $393.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is computed daily and paid monthly. The administrative services fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.0221% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
MFS Corporate Bond Portfolio
Notes to Financial Statements - continued
(4) Portfolio Securities
For the year ended December 31, 2023, purchases and sales of investments, other than purchased options with an expiration date of less than one year from the time of purchase and short-term obligations, were as follows:
| | Purchases | Sales |
| U.S. Government securities | $12,517,553 | $10,300,982 |
| Non-U.S. Government securities | 72,696,152 | 74,322,466 |
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 210,263 | $1,949,532 | | 154,018 | $1,628,859 |
| Service Class | 1,457,689 | 13,271,994 | | 4,514,529 | 50,204,109 |
| | 1,667,952 | $15,221,526 | | 4,668,547 | $51,832,968 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 167,976 | $1,500,029 | | 412,311 | $3,863,350 |
| Service Class | 409,936 | 3,607,436 | | 1,145,714 | 10,574,943 |
| | 577,912 | $5,107,465 | | 1,558,025 | $14,438,293 |
| Shares reacquired | | | | | |
| Initial Class | (633,725) | $(5,866,955) | | (723,799) | $(7,198,182) |
| Service Class | (1,686,895) | (15,296,911) | | (8,195,309) | (83,714,042) |
| | (2,320,620) | $(21,163,866) | | (8,919,108) | $(90,912,224) |
| Net change | | | | | |
| Initial Class | (255,486) | $(2,417,394) | | (157,470) | $(1,705,973) |
| Service Class | 180,730 | 1,582,519 | | (2,535,066) | (22,934,990) |
| | (74,756) | $(834,875) | | (2,692,536) | $(24,640,963) |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 14, 2024 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2023, the fund’s commitment fee and interest expense were $678 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
MFS Corporate Bond Portfolio
Notes to Financial Statements - continued
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $3,562,231 | $46,909,521 | $48,966,296 | $78 | $(424) | $1,505,110 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $172,183 | $— |
(8) LIBOR Transition
The London Interbank Offered Rate (LIBOR) was intended to represent the rate at which contributing banks may obtain short-term borrowings from each other in the London interbank market. Certain of the fund's investments, payment obligations, and financing terms were historically based on LIBOR. In 2017, the United Kingdom Financial Conduct Authority (FCA) announced plans to transition away from LIBOR by the end of 2021. LIBOR's administrator, ICE Benchmark Administration (IBA), ceased publication (on a representative basis) of many of its LIBOR settings as of December 31, 2021 and ceased publication (on a representative basis) of the remaining U.S. dollar LIBOR settings as of June 30, 2023. In addition, global regulators announced that, with limited exceptions, no new LIBOR-based contracts should be entered into after 2021. Although the FCA has announced that it will require the IBA to continue to publish certain select LIBOR rates on a synthetic basis after the relevant cessation dates, such synthetic rates are not considered to be representative of the underlying market and economic reality they are intended to measure, are expected to be published for a limited time period, and are intended solely for use on a limited basis for legacy transactions.
Regulators and industry groups have implemented measures to facilitate the transition away from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (SOFR). SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities in the repurchase agreement (repo) market. SOFR is published in various forms including as a daily, compounded, and forward-looking term rate. The transition to alternative reference rates may affect the liquidity and valuation of investments that were tied to LIBOR or other interbank offered rates and may lead to other consequences affecting securities and credit markets more broadly. For example, while some investments that were tied to LIBOR provided for an alternative or “fallback” rate-setting methodology in the event LIBOR is not available, there is uncertainty regarding the effectiveness of any such alternative methodologies to replace LIBOR and certain investments tied to LIBOR may not have fallback provisions. While legislation passed in the United States facilitates by operation of law the replacement of U.S. dollar LIBOR settings in certain legacy instruments with a specified replacement rate, such as SOFR, there is uncertainty regarding the effectiveness of such legislation. There also remains uncertainty regarding the willingness and ability of parties to add or amend fallback provisions in certain other legacy instruments maturing after the cessation of the applicable LIBOR rates, which could create market and litigation risk.
It is difficult to quantify or predict the impact on the fund resulting from the transition from LIBOR to alternative reference rates and the potential effects of the transition from LIBOR on the fund, or on certain instruments in which the fund invests, are not known. The transition process may involve, among other things, increased volatility or illiquidity in markets for instruments that relied on LIBOR to determine interest rates. The transition may also result in a reduction in value of certain LIBOR-related investments held by the fund or reduce the effectiveness of related transactions such as hedges. Any such effects of the transition away from LIBOR and the adoption of alternative reference rates, as well as other unforeseen effects, could have an adverse impact on the fund's performance.
With respect to the fund’s accounting for investments, including investments in certain debt instruments and derivatives, as well as borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a result of the transition, management has and will continue to rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for such contract modifications made on or before December 31, 2024 as a continuation of the existing contracts. The situation remains fluid, and management believes, based on best available information, that the impact of the transition will not be material to the fund.
MFS Corporate Bond Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Corporate Bond Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Corporate Bond Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 2024
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Corporate Bond Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2024, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 57) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 69) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 72) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 69) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 68) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 68) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 62) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 67) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 67) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 66) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 55) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
MFS Corporate Bond Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
John W. Clark, Jr. (k)
(age 56) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 55) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 56) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 47) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022) |
Amanda S. Mooradian (k)
(age 44) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 53) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 53) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
James O. Yost (k)
(age 63) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Caroselli, Jones and Otis are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
MFS Corporate Bond Portfolio
Trustees and Officers - continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Congress Street, Suite 1
Boston, MA 02114-2016 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Alexander Mackey
John Mitchell | |
MFS Corporate Bond Portfolio
Board Review of Investment Advisory Agreement
MFS Corporate Bond Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2023 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2022 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2022, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 4th quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 3rd quintile for the one-year period and the 4th quintile for the three-year period ended December 31, 2022 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. The Trustees noted that the total return performance (Class I shares) of the Fund’s retail counterpart, MFS Corporate Bond Fund, which has substantially similar investment strategies, was in the 3rd quintile relative to
MFS Corporate Bond Portfolio
Board Review of Investment Advisory Agreement - continued
the other funds in its Broadridge performance universe for the five-year period ended December 31, 2022. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate was higher than the Broadridge expense group median and the Fund’s total expense ratio was approximately at the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2023.
MFS Corporate Bond Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2023
MFS® Emerging Markets
Equity Portfolio
MFS® Variable Insurance Trust II
MFS® Emerging Markets Equity Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Emerging Markets Equity Portfolio
Portfolio structure
Top ten holdings
| Taiwan Semiconductor Manufacturing Co. Ltd. | 9.0% |
| Samsung Electronics Co. Ltd. | 6.5% |
| Tencent Holdings Ltd. | 4.9% |
| Alibaba Group Holding Ltd., ADR | 3.0% |
| HDFC Bank Ltd. | 2.2% |
| Tata Consultancy Services Ltd. | 1.9% |
| Kotak Mahindra Bank Ltd. | 1.7% |
| Infosys Ltd. | 1.7% |
| Hon Hai Precision Industry Co. Ltd. | 1.6% |
| Delta Electronics, Inc. | 1.6% |
GICS equity sectors (g)
| Information Technology | 23.8% |
| Financials | 23.4% |
| Consumer Discretionary | 11.4% |
| Communication Services | 10.9% |
| Consumer Staples | 10.2% |
| Energy | 6.2% |
| Materials | 4.9% |
| Industrials | 3.5% |
| Real Estate | 2.6% |
| Health Care | 1.2% |
| Utilities | 0.8% |
Issuer country weightings (x)
| China | 26.9% |
| South Korea | 14.9% |
| India | 13.4% |
| Taiwan | 12.3% |
| Brazil | 7.8% |
| Hong Kong | 3.2% |
| Mexico | 3.0% |
| Indonesia | 3.0% |
| Thailand | 2.2% |
| Other Countries | 13.3% |
Currency exposure weightings (y)
| Hong Kong Dollar | 21.3% |
| South Korean Won | 14.9% |
| Indian Rupee | 13.0% |
| Taiwan Dollar | 12.3% |
| Brazilian Real | 7.8% |
| Chinese Renminbi | 7.4% |
| United States Dollar | 5.0% |
| Euro | 3.2% |
| Mexican Peso | 3.0% |
| Other Currencies | 12.1% |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States (included in Other Countries) includes Cash & Cash Equivalents. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2023.
The portfolio is actively managed and current holdings may be different.
MFS Emerging Markets Equity Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2023, Initial Class shares of the MFS Emerging Markets Equity Portfolio (fund) provided a total return of 10.90%, while Service Class shares of the fund provided a total return of 10.71%. These compare with a return of 9.83% for the fund’s benchmark, the MSCI Emerging Markets Index (net div).
Market Environment
During the reporting period, central banks around the world had to combat the strongest inflationary pressures in four decades, fueled by the global fiscal response to the pandemic, disrupted supply chains and the dislocations to energy markets stemming from the war in Ukraine. Interest rates rose substantially, but the effects of a tighter monetary policy may not have been fully experienced yet, given that monetary policy works with long and variable lags. Strains resulting from the abrupt tightening of monetary policy began to affect some parts of the economy, most acutely among small and regional US banks, which suffered from deposit flight as depositors sought higher yields on their savings. Additionally, activity in the US housing sector has slowed as a result of higher mortgage rates. China’s abandonment of its Zero-COVID policy ushered in a brief uptick in economic activity in the world’s second-largest economy in early 2023, although its momentum soon stalled as the focus turned to the country’s highly indebted property development sector. In developed markets, consumer demand for services remained stronger than the demand for goods.
Early on, policymakers found themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, central banks focused on controlling price pressures while also confronting increasing financial stability concerns. Central banks had to juggle achieving their inflation mandates while using macroprudential tools (financial policies aimed at safeguarding the stability of the financial system) to keep banking systems liquid, a potentially difficult balancing act, and one that suggested that we may be nearing a peak in policy rates. As inflationary pressures eased toward the end of the period, financial conditions loosened in anticipation of easier monetary policy, boosting the market’s appetite for risk. Rapid advancements in artificial intelligence were a focus for investors.
Normalizing supply chains, low levels of unemployment across developed markets and signs that inflation levels have peaked were supportive factors for the macroeconomic backdrop.
Contributors to Performance
Relative to the MSCI Emerging Markets Index, security selection and an overweight position in the energy sector contributed to performance led by the fund’s overweight position in oil and gas exploration and production company Petroleo Brasileiro (Brazil). The share price of Petroleo Brasileiro benefited from solid operational results despite softer oil prices and a higher-than-expected dividend payout.
Security selection in both the industrials and communication services sectors also supported relative results. Within the industrials sector, the fund’s overweight position in compact excavator manufacturer Doosan Bobcat (South Korea) was among the fund’s top relative contributors. The share price of Doosan Bobcat advanced as the company reported robust demand for construction equipment in the US due to a strong order intake by large rental companies. Within the communication services sector, the fund’s overweight position in interactive online community operator NetEase (China) aided relative returns.
The combination of favorable stock selection and an underweight position in the materials sector boosted relative performance, driven by the fund’s overweight position in gold mining company Gold Fields (South Africa). The share price of Gold Fields rose due to higher-than-expected gold mining volumes and an upswing in gold prices on the back of the US regional bank crisis.
Elsewhere, the fund’s underweight position in e-commerce platform manager Meituan(h) (China) supported relative returns. The share price of Meituan suffered from the adverse impact on food delivery volume growth from a weak macro environment and increased investment in its in-store business caused by intensified competition with Douyin in its food delivery services segment. Additionally, the fund’s overweight positions in microchip and electronics manufacturer Samsung Electronics (South Korea), semiconductor manufacturer Taiwan Semiconductor Manufacturing (Taiwan), real estate property development firm Emaar Properties (United Arab Emirates), marine and casualty insurance services provider Samsung Fire & Marine Insurance (South Korea), and corn flour producer Gruma (Mexico) helped relative performance.
During the reporting period, the fund's relative currency exposure, resulting primarily from differences between the fund's and the benchmark's exposures to holdings of securities denominated in foreign currencies, contributed to relative performance. All of MFS' investment decisions are driven by the fundamentals of each individual opportunity and as such, it is common for our funds to have different currency exposure than the benchmark.
MFS Emerging Markets Equity Portfolio
Management Review - continued
Detractors from Performance
During the reporting period, security selection and an overweight position in the consumer staples sector detracted from relative performance, led by the fund’s overweight positions in dairy products and health drinks producer Inner Mongolia Yili Industrial Group (China) and brewing company China Resources Beer Holdings (China). The share price of Inner Mongolia Yili Industrial Group fell owing to slightly weaker-than-anticipated sales and lowered growth guidance attributed to a lackluster recovery in the milk segment.
Security selection in both the financials and information technology sectors also dampened relative results. Within the financials sector, an overweight position in personal financial services provider Ping An Insurance Co. of China (China), and the fund’s holdings of insurance company AIA Group(b) (Hong Kong), weakened relative returns. The share price of Ping An Insurance Co. of China declined over lower-than-expected net profits impacted by a loss across its asset management business, poor property & casualty insurance results, and softer-than-expected banking business earnings. Within the information technology sector, the fund’s underweight position in strong-performing semiconductor products manufacturer SK Hynix(h) (South Korea), and not owning shares of integrated circuits manufacturer Mediatek (Taiwan), also held back relative performance. The share price of SK Hynix advanced as the company reported a smaller-than-feared decline in pricing power for DRAM and NAND memory components amid ongoing elevated inventory levels.
Elsewhere, not owning shares of online retailer PDD (China), and the fund’s overweight positions in fast-food restaurant operator Yum China Holdings, chemicals producer UPL (India), and cement manufacturer Anhui Conch Cement (China) further weakened relative returns. The share price of PDD climbed as the company reported strong revenues in both its online marketing and transaction services segments, paired with lower marketing and sales costs.
Respectfully,
Portfolio Manager(s)
Rajesh Nair and Harry Purcell
Note to Shareholders: Effective April 15, 2023, Jose Luis Garcia is no longer a Portfolio Manager of the fund.
| (b) | Security is not a benchmark constituent. |
| (h) | Security was not held in the portfolio at period end. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Emerging Markets Equity Portfolio
Performance Summary Through 12/31/23
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/23
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 6/05/1996 | 10.90% | 2.04% | 1.56% |
| Service Class | 8/24/2001 | 10.71% | 1.79% | 1.31% |
Comparative benchmark(s)
| MSCI Emerging Markets Index (net div) (f) | 9.83% | 3.68% | 2.66% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
MSCI Emerging Markets Index(e) (net div) – a market capitalization-weighted index that is designed to measure equity market performance in the global emerging markets.
It is not possible to invest directly in an index.
| (e) | Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
MFS Emerging Markets Equity Portfolio
Performance Summary – continued
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Emerging Markets Equity Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2023 through December 31, 2023
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2023 through December 31, 2023.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/23 | Ending
Account Value
12/31/23 | Expenses
Paid During
Period (p)
7/01/23-12/31/23 |
| Initial Class | Actual | 1.23% | $1,000.00 | $1,016.25 | $6.25 |
| Hypothetical (h) | 1.23% | $1,000.00 | $1,019.00 | $6.26 |
| Service Class | Actual | 1.48% | $1,000.00 | $1,015.41 | $7.52 |
| Hypothetical (h) | 1.48% | $1,000.00 | $1,017.74 | $7.53 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS Emerging Markets Equity Portfolio
Portfolio of Investments − 12/31/23
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 98.9% |
| Alcoholic Beverages – 3.9% | |
| Ambev S.A., ADR | | 143,194 | $ 400,943 |
| China Resources Beer Holdings Co. Ltd. | | 52,000 | 227,752 |
| Kweichow Moutai Co. Ltd., “A” | | 2,100 | 511,068 |
| Wuliangye Yibin Co. Ltd., “A” | | 13,100 | 259,167 |
| | | | | $1,398,930 |
| Automotive – 2.4% | |
| BYD Co. Ltd. | | 10,000 | $ 274,573 |
| Hero MotoCorp Ltd. | | 3,413 | 169,783 |
| Mahindra & Mahindra Ltd. | | 20,384 | 423,633 |
| | | | | $867,989 |
| Biotechnology – 0.8% | |
| Hugel, Inc. (a) | | 2,481 | $ 287,803 |
| Brokerage & Asset Managers – 1.0% | |
| B3 S.A. - Brasil Bolsa Balcao | | 120,400 | $ 360,635 |
| Moscow Exchange MICEX-RTS PJSC (a)(u) | | 369,124 | 0 |
| | | | | $360,635 |
| Business Services – 4.7% | |
| Infosys Ltd. | | 32,162 | $ 596,329 |
| Tata Consultancy Services Ltd. | | 14,763 | 672,989 |
| Tech Mahindra Ltd. | | 27,070 | 414,002 |
| | | | | $1,683,320 |
| Chemicals – 1.3% | |
| UPL Ltd. | | 65,855 | $ 464,747 |
| Computer Software – 0.7% | |
| Kingsoft Corp. | | 78,200 | $ 241,355 |
| Computer Software - Systems – 8.2% | |
| Hon Hai Precision Industry Co. Ltd. | | 172,000 | $ 585,653 |
| Samsung Electronics Co. Ltd. | | 38,084 | 2,316,266 |
| | | | | $2,901,919 |
| Conglomerates – 0.7% | |
| LG Corp. (a) | | 3,768 | $ 250,656 |
| Construction – 4.2% | |
| Anhui Conch Cement Co. Ltd. | | 76,000 | $ 175,583 |
| Gree Electric Appliances, Inc., “A” | | 80,300 | 364,238 |
| Midea Group Co. Ltd., “A” | | 39,100 | 301,181 |
| Techtronic Industries Co. Ltd. | | 39,500 | 470,702 |
| Zhejiang Supor Co. Ltd., “A” | | 25,000 | 186,860 |
| | | | | $1,498,564 |
| Consumer Products – 0.4% | |
| AmorePacific Corp. (a) | | 1,147 | $ 128,649 |
| Electronics – 9.0% | |
| Taiwan Semiconductor Manufacturing Co. Ltd. | | 165,258 | $ 3,193,105 |
MFS Emerging Markets Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Energy - Independent – 0.6% | |
| Reliance Industries Ltd. | | 7,476 | $ 232,234 |
| Energy - Integrated – 4.4% | |
| China Petroleum & Chemical Corp. | | 766,000 | $ 401,222 |
| Galp Energia SGPS S.A., “B” | | 30,724 | 452,463 |
| LUKOIL PJSC (a)(u) | | 6,698 | 0 |
| Petroleo Brasileiro S.A., ADR | | 28,848 | 460,702 |
| Petroleo Brasileiro S.A., ADR | | 15,172 | 231,828 |
| | | | | $1,546,215 |
| Engineering - Construction – 1.0% | |
| Doosan Bobcat, Inc. | | 8,693 | $ 338,816 |
| Food & Beverages – 3.6% | |
| Gruma S.A.B. de C.V. | | 18,798 | $ 344,433 |
| Inner Mongolia Yili Industrial Group Co. Ltd., “A” | | 145,541 | 548,944 |
| Orion Corp. (a) | | 2,833 | 254,005 |
| Tingyi (Cayman Islands) Holding Corp. | | 120,000 | 146,302 |
| | | | | $1,293,684 |
| Food & Drug Stores – 0.3% | |
| BIM Birlesik Magazalar A.S. | | 9,160 | $ 93,484 |
| Forest & Paper Products – 0.8% | |
| Suzano S.A. | | 24,100 | $ 275,997 |
| Insurance – 6.1% | |
| AIA Group Ltd. | | 42,000 | $ 366,024 |
| DB Insurance Co. Ltd. (a) | | 3,856 | 250,101 |
| Discovery Ltd. | | 28,691 | 225,356 |
| Hyundai Marine & Fire Insurance Co. Ltd. (a) | | 8,675 | 208,383 |
| Ping An Insurance Co. of China Ltd., “H” | | 120,000 | 543,254 |
| Prudential PLC | | 4,580 | 51,794 |
| Samsung Fire & Marine Insurance Co. Ltd. (a) | | 2,524 | 514,753 |
| | | | | $2,159,665 |
| Internet – 7.4% | |
| Baidu, Inc., ADR (a) | | 846 | $ 100,750 |
| MakeMyTrip Ltd. (a) | | 3,052 | 143,383 |
| NAVER Corp. | | 1,620 | 280,375 |
| NetEase, Inc., ADR | | 4,048 | 377,112 |
| Tencent Holdings Ltd. | | 46,000 | 1,729,602 |
| | | | | $2,631,222 |
| Machinery & Tools – 1.6% | |
| Delta Electronics, Inc. | | 57,000 | $ 582,249 |
| Major Banks – 4.1% | |
| Banco Bradesco S.A., ADR | | 143,570 | $ 502,495 |
| Bandhan Bank Ltd. | | 79,820 | 231,555 |
| Erste Group Bank AG | | 10,705 | 434,067 |
| Nedbank Group Ltd. | | 23,115 | 273,235 |
| | | | | $1,441,352 |
MFS Emerging Markets Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Medical & Health Technology & Services – 0.0% | |
| Burning Rock Biotech Ltd., ADR (a) | | 18,655 | $ 17,349 |
| Metals & Mining – 2.2% | |
| Industries Qatar Q.P.S.C. | | 23,488 | $ 84,379 |
| PT United Tractors Tbk | | 280,200 | 411,738 |
| Vale S.A., ADR | | 17,691 | 280,579 |
| | | | | $776,696 |
| Natural Gas - Distribution – 0.8% | |
| China Resources Gas Group Ltd. | | 88,700 | $ 290,801 |
| Network & Telecom – 0.3% | |
| GDS Holdings Ltd., “A” (a) | | 21,500 | $ 24,946 |
| GDS Holdings Ltd., ADR (a)(l) | | 7,593 | 69,248 |
| | | | | $94,194 |
| Other Banks & Diversified Financials – 12.5% | |
| Bangkok Bank Public Co. Ltd. | | 71,000 | $ 325,540 |
| Bank Negara Indonesia PT | | 805,600 | 281,230 |
| China Construction Bank Corp. | | 919,670 | 547,668 |
| China Merchants Bank Co Ltd. “A” | | 27,000 | 105,911 |
| China Merchants Bank Co. Ltd. | | 21,500 | 74,893 |
| Credicorp Ltd. | | 3,864 | 579,329 |
| Emirates NBD PJSC | | 60,364 | 284,337 |
| Grupo Financiero Banorte S.A. de C.V. | | 11,992 | 120,591 |
| HDFC Bank Ltd. | | 38,641 | 793,704 |
| KB Financial Group, Inc. | | 8,285 | 346,523 |
| Kotak Mahindra Bank Ltd. | | 26,544 | 608,657 |
| Sberbank of Russia PJSC (a)(u) | | 286,804 | 0 |
| SK Square Co. Ltd. (a) | | 2,682 | 109,266 |
| Tisco Financial Group PCL | | 91,900 | 268,572 |
| | | | | $4,446,221 |
| Pharmaceuticals – 0.3% | |
| Genomma Lab Internacional S.A., “B” | | 147,235 | $ 122,775 |
| Precious Metals & Minerals – 1.1% | |
| Gold Fields Ltd., ADR | | 16,106 | $ 232,893 |
| Polymetal International PLC (a) | | 35,382 | 159,219 |
| | | | | $392,112 |
| Real Estate – 2.3% | |
| Emaar Properties PJSC | | 227,065 | $ 489,648 |
| ESR Group Ltd. | | 96,600 | 133,609 |
| Hang Lung Properties Ltd. | | 128,000 | 178,349 |
| | | | | $801,606 |
| Restaurants – 1.4% | |
| Yum China Holdings, Inc. | | 11,604 | $ 492,358 |
| Specialty Chemicals – 0.5% | |
| Saudi Basic Industries Corp. | | 7,243 | $ 161,277 |
MFS Emerging Markets Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Specialty Stores – 6.4% | |
| Alibaba Group Holding Ltd. | | 108,348 | $ 1,048,999 |
| JD.com, Inc., “A” | | 9,380 | 135,141 |
| JD.com, Inc., ADR | | 440 | 12,712 |
| Lojas Renner S.A. | | 43,217 | 154,982 |
| Multiplan Empreendimentos Imobiliarios S.A. | | 19,046 | 111,431 |
| Vipshop Holdings Ltd., ADR (a) | | 18,525 | 329,004 |
| Walmart de Mexico S.A.B. de C.V. | | 113,003 | 476,275 |
| | | | | $2,268,544 |
| Telecommunications - Wireless – 2.5% | |
| Advanced Info Service Public Co. Ltd. | | 31,600 | $ 200,899 |
| Etihad Etisalat Co. | | 25,343 | 331,487 |
| PT Telekom Indonesia | | 1,392,800 | 357,314 |
| | | | | $889,700 |
| Telephone Services – 0.7% | |
| Hellenic Telecommunications Organization S.A. | | 17,127 | $ 243,905 |
| Tobacco – 0.7% | |
| British American Tobacco PLC | | 8,277 | $ 242,182 |
| Total Common Stocks (Identified Cost, $29,317,889) | | $35,112,310 |
| Investment Companies (h) – 2.0% |
| Money Market Funds – 2.0% | |
| MFS Institutional Money Market Portfolio, 5.42% (v) (Identified Cost, $693,832) | | | 693,831 | $ 693,970 |
| Collateral for Securities Loaned – 0.2% |
| State Street Navigator Securities Lending Government Money Market Portfolio, 5.36% (j) (Identified Cost, $64,914) | | | 64,914 | $ 64,914 |
| Other Assets, Less Liabilities – (1.1)% | | (377,215) |
| Net Assets – 100.0% | $35,493,979 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $693,970 and $35,177,224, respectively. | | | |
| (j) | The rate quoted is the annualized seven-day yield of the fund at period end. | | | |
| (l) | A portion of this security is on loan. See Note 2 for additional information. | | | |
| (u) | The security was valued using significant unobservable inputs and is considered level 3 under the fair value hierarchy. For further information about the fund’s level 3 holdings, please see Note 2 in the Notes to Financial Statements. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| PCL | Public Company Limited |
See Notes to Financial Statements
MFS Emerging Markets Equity Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/23Assets | |
| Investments in unaffiliated issuers, at value, including $62,317 of securities on loan (identified cost, $29,382,803) | $35,177,224 |
| Investments in affiliated issuers, at value (identified cost, $693,832) | 693,970 |
| Foreign currency, at value (identified cost, $24,395) | 24,379 |
| Receivables for | |
| Investments sold | 3 |
| Fund shares sold | 5,325 |
| Interest and dividends | 124,461 |
| Other assets | 392 |
| Total assets | $36,025,754 |
| Liabilities | |
| Payable to custodian | $752 |
| Payables for | |
| Investments purchased | 129,760 |
| Fund shares reacquired | 132,931 |
| Collateral for securities loaned, at value | 64,914 |
| Payable to affiliates | |
| Investment adviser | 7,282 |
| Administrative services fee | 192 |
| Shareholder servicing costs | 5 |
| Distribution and/or service fees | 536 |
| Payable for independent Trustees' compensation | 109 |
| Deferred foreign capital gains tax expense payable | 98,311 |
| Accrued expenses and other liabilities | 96,983 |
| Total liabilities | $531,775 |
| Net assets | $35,493,979 |
| Net assets consist of | |
| Paid-in capital | $30,954,210 |
| Total distributable earnings (loss) | 4,539,769 |
| Net assets | $35,493,979 |
| Shares of beneficial interest outstanding | 2,878,278 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $15,889,147 | 1,275,670 | $12.46 |
| Service Class | 19,604,832 | 1,602,608 | 12.23 |
See Notes to Financial Statements
MFS Emerging Markets Equity Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/23 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $1,424,469 |
| Dividends from affiliated issuers | 33,199 |
| Other | 4,951 |
| Income on securities loaned | 1,110 |
| Foreign taxes withheld | (147,423) |
| Total investment income | $1,316,306 |
| Expenses | |
| Management fee | $369,981 |
| Distribution and/or service fees | 48,376 |
| Shareholder servicing costs | 1,580 |
| Administrative services fee | 17,500 |
| Independent Trustees' compensation | 3,090 |
| Custodian fee | 56,120 |
| Audit and tax fees | 68,587 |
| Legal fees | 238 |
| Miscellaneous | 12,714 |
| Total expenses | $578,186 |
| Reduction of expenses by investment adviser | (95,809) |
| Net expenses | $482,377 |
| Net investment income (loss) | $833,929 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (includes $48,469 foreign capital gains tax) | $359,233 |
| Affiliated issuers | 46 |
| Foreign currency | (14,167) |
| Net realized gain (loss) | $345,112 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (includes $27,164 increase in deferred foreign capital gains tax) | $2,444,459 |
| Affiliated issuers | (94) |
| Translation of assets and liabilities in foreign currencies | 696 |
| Net unrealized gain (loss) | $2,445,061 |
| Net realized and unrealized gain (loss) | $2,790,173 |
| Change in net assets from operations | $3,624,102 |
See Notes to Financial Statements
MFS Emerging Markets Equity Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/23 | 12/31/22 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $833,929 | $604,023 |
| Net realized gain (loss) | 345,112 | (1,129,731) |
| Net unrealized gain (loss) | 2,445,061 | (8,271,401) |
| Change in net assets from operations | $3,624,102 | $(8,797,109) |
| Total distributions to shareholders | $(452,496) | $(4,082,042) |
| Change in net assets from fund share transactions | $(2,359,307) | $3,214,089 |
| Total change in net assets | $812,299 | $(9,665,062) |
| Net assets | | |
| At beginning of period | 34,681,680 | 44,346,742 |
| At end of period | $35,493,979 | $34,681,680 |
See Notes to Financial Statements
MFS Emerging Markets Equity Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $11.39 | $16.03 | $17.28 | $17.04 | $14.75 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.30 | $0.23 | $0.20 | $0.14 | $0.28 |
| Net realized and unrealized gain (loss) | 0.95 | (3.36) | (1.36) | 1.47 | 2.63 |
| Total from investment operations | $1.25 | $(3.13) | $(1.16) | $1.61 | $2.91 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.18) | $(0.57) | $(0.09) | $(0.50) | $(0.11) |
| From net realized gain | — | (0.94) | (0.00)(w) | (0.87) | (0.51) |
| Total distributions declared to shareholders | $(0.18) | $(1.51) | $(0.09) | $(1.37) | $(0.62) |
| Net asset value, end of period (x) | $12.46 | $11.39 | $16.03 | $17.28 | $17.04 |
| Total return (%) (k)(r)(s)(x) | 10.99 | (19.79) | (6.75) | 10.63 | 20.45 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.50 | 1.82 | 1.62 | 1.73 | 1.55 |
| Expenses after expense reductions | 1.23 | 1.23 | 1.23 | 1.23 | 1.29 |
| Net investment income (loss) | 2.50 | 1.78 | 1.16 | 0.94 | 1.76 |
| Portfolio turnover | 29 | 37 | 41 | 48 | 21 |
| Net assets at end of period (000 omitted) | $15,889 | $15,452 | $19,498 | $20,335 | $21,065 |
| Service Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $11.19 | $15.76 | $16.99 | $16.78 | $14.53 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.27 | $0.19 | $0.15 | $0.11 | $0.24 |
| Net realized and unrealized gain (loss) | 0.91 | (3.30) | (1.33) | 1.43 | 2.58 |
| Total from investment operations | $1.18 | $(3.11) | $(1.18) | $1.54 | $2.82 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.14) | $(0.52) | $(0.05) | $(0.46) | $(0.06) |
| From net realized gain | — | (0.94) | (0.00)(w) | (0.87) | (0.51) |
| Total distributions declared to shareholders | $(0.14) | $(1.46) | $(0.05) | $(1.33) | $(0.57) |
| Net asset value, end of period (x) | $12.23 | $11.19 | $15.76 | $16.99 | $16.78 |
| Total return (%) (k)(r)(s)(x) | 10.62 | (19.94) | (6.97) | 10.33 | 20.11 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.75 | 2.07 | 1.87 | 1.98 | 1.80 |
| Expenses after expense reductions | 1.48 | 1.48 | 1.48 | 1.48 | 1.54 |
| Net investment income (loss) | 2.26 | 1.51 | 0.90 | 0.71 | 1.52 |
| Portfolio turnover | 29 | 37 | 41 | 48 | 21 |
| Net assets at end of period (000 omitted) | $19,605 | $19,230 | $24,849 | $25,643 | $25,616 |
See Notes to Financial Statements
MFS Emerging Markets Equity Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (w) | Per share amount was less than $0.01. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS Emerging Markets Equity Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Emerging Markets Equity Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions. Investments in emerging markets can involve additional and greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, accounting, and auditing systems, greater government involvement in the economy, greater risk of new or inconsistent government treatment of or restrictions on issuers and instruments, and greater political, social, and economic instability than developed markets.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading
MFS Emerging Markets Equity Portfolio
Notes to Financial Statements - continued
does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2023 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| China | $9,537,993 | $— | $— | $9,537,993 |
| South Korea | 287,803 | 4,997,793 | — | 5,285,596 |
| India | 4,751,016 | — | — | 4,751,016 |
| Taiwan | 4,361,007 | — | — | 4,361,007 |
| Brazil | 2,779,592 | — | — | 2,779,592 |
| Hong Kong | 1,148,684 | — | — | 1,148,684 |
| Mexico | 1,064,074 | — | — | 1,064,074 |
| Indonesia | 1,050,282 | — | — | 1,050,282 |
| Thailand | 325,540 | 469,471 | — | 795,011 |
| Other Countries | 4,339,055 | — | 0 | 4,339,055 |
| Mutual Funds | 758,884 | — | — | 758,884 |
| Total | $30,403,930 | $5,467,264 | $0 | $35,871,194 |
For further information regarding security characteristics, see the Portfolio of Investments. At December 31, 2023, the fund held three level 3 securities valued at $0, which were also held and valued at $0 at December 31, 2022.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from
MFS Emerging Markets Equity Portfolio
Notes to Financial Statements - continued
collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund's Portfolio of Investments, with a fair value of $62,317. The fair value of the fund's investment securities on loan and a related liability of $64,914 for cash collateral received on securities loaned are both presented gross in the Statement of Assets and Liabilities. The collateral on securities loaned exceeded the value of securities on loan at period end. The liability for cash collateral for securities loaned is carried at fair value, which is categorized as level 2 within the fair value hierarchy. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Investment transactions are recorded on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to passive foreign investment companies and wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/23 | Year ended
12/31/22 |
| Ordinary income (including any short-term capital gains) | $452,496 | $1,898,969 |
| Long-term capital gains | — | 2,183,073 |
| Total distributions | $452,496 | $4,082,042 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
MFS Emerging Markets Equity Portfolio
Notes to Financial Statements - continued
| As of 12/31/23 | |
| Cost of investments | $30,988,647 |
| Gross appreciation | 9,580,787 |
| Gross depreciation | (4,698,240) |
| Net unrealized appreciation (depreciation) | $4,882,547 |
| Undistributed ordinary income | 822,794 |
| Capital loss carryforwards | (1,054,987) |
| Other temporary differences | (110,585) |
| Total distributable earnings (loss) | $4,539,769 |
As of December 31, 2023, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(245,418) |
| Long-Term | (809,569) |
| Total | $(1,054,987) |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/23 | | Year
ended
12/31/22 |
| Initial Class | $228,103 | | $1,838,043 |
| Service Class | 224,393 | | 2,243,999 |
| Total | $452,496 | | $4,082,042 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $500 million | 1.05% |
| In excess of $500 million | 1.00% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this management fee reduction amounted to $4,507, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 1.04% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 1.23% of average daily net assets for the Initial Class shares and 1.48% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this reduction amounted to $91,302, which is included in the reduction of total expenses in the Statement of Operations.
MFS Emerging Markets Equity Portfolio
Notes to Financial Statements - continued
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares as well as shareholder servicing and account maintenance activities. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. The distribution and/or service fees are computed daily and paid monthly.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2023, the fee was $1,156, which equated to 0.0033% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2023, these costs amounted to $424.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is computed daily and paid monthly. The administrative services fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.0496% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the year ended December 31, 2023, this reimbursement amounted to $4,926, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the year ended December 31, 2023, purchases and sales of investments, other than short-term obligations, aggregated $9,867,508 and $11,805,046, respectively.
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 105,215 | $1,271,583 | | 136,399 | $1,835,586 |
| Service Class | 172,924 | 2,057,026 | | 199,460 | 2,545,499 |
| | 278,139 | $3,328,609 | | 335,859 | $4,381,085 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 18,945 | $228,103 | | 157,772 | $1,838,043 |
| Service Class | 18,952 | 224,393 | | 195,982 | 2,243,999 |
| | 37,897 | $452,496 | | 353,754 | $4,082,042 |
MFS Emerging Markets Equity Portfolio
Notes to Financial Statements - continued
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares reacquired | | | | | |
| Initial Class | (204,676) | $(2,478,243) | | (154,707) | $(2,042,596) |
| Service Class | (307,699) | (3,662,169) | | (253,766) | (3,206,442) |
| | (512,375) | $(6,140,412) | | (408,473) | $(5,249,038) |
| Net change | | | | | |
| Initial Class | (80,516) | $(978,557) | | 139,464 | $1,631,033 |
| Service Class | (115,823) | (1,380,750) | | 141,676 | 1,583,056 |
| | (196,339) | $(2,359,307) | | 281,140 | $3,214,089 |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Growth Allocation Portfolio was the owner of record of approximately 8% of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 14, 2024 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2023, the fund’s commitment fee and interest expense were $176 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $693,445 | $7,134,160 | $7,133,587 | $46 | $(94) | $693,970 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $33,199 | $— |
(8) Russia and Ukraine Conflict
The fund invests in securities and/or derivative instruments that are economically tied to Russia and/or Ukraine. Escalation of the conflict between Russia and Ukraine in late February 2022 caused market volatility and disruption in the tradability of Russian securities, including closure of the local securities market, temporary restriction on securities sales by non-residents, and disruptions to clearance and payment systems. To the extent that the fund is unable to sell securities, whether due to market constraints or to the sanctions imposed on Russia by the United States and other countries, those securities are considered illiquid and the value of those securities reflects their illiquid classification. Management continues to monitor these events and to evaluate the related impacts on fund performance.
MFS Emerging Markets Equity Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Emerging Markets Equity Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Emerging Markets Equity Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 2024
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Emerging Markets Equity Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2024, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 57) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 69) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 72) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 69) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 68) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 68) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 62) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 67) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 67) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 66) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 55) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
MFS Emerging Markets Equity Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
John W. Clark, Jr. (k)
(age 56) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 55) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 56) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 47) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022) |
Amanda S. Mooradian (k)
(age 44) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 53) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 53) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
James O. Yost (k)
(age 63) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Caroselli, Jones and Otis are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
MFS Emerging Markets Equity Portfolio
Trustees and Officers - continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Congress Street, Suite 1
Boston, MA 02114-2016 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Rajesh Nair
Harry Purcell | |
MFS Emerging Markets Equity Portfolio
Board Review of Investment Advisory Agreement
MFS Emerging Markets Equity Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2023 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2022 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2022, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 4th quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 1st quintile for the one-year period and the 5th quintile for the three-year period ended December 31, 2022 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
The Trustees expressed continued concern to MFS about the substandard investment performance of the Fund and the Fund’s retail counterpart, MFS Emerging Markets Equity Fund, which has substantially similar investment strategies and experienced substantially similar investment performance as the Fund. In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year as to MFS’ efforts to improve the performance of the Fund and the Fund’s
MFS Emerging Markets Equity Portfolio
Board Review of Investment Advisory Agreement - continued
retail counterpart. In addition, the Trustees requested that they receive a separate update on the Fund’s retail counterpart at each of their regular meetings. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that MFS’ responses and efforts and plans to improve investment performance were sufficient to support approval of the continuance of the investment advisory agreement for an additional one-year period, but that they would continue to closely monitor the performance of the Fund’s retail counterpart.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate was lower than the Broadridge expense group median and the Fund’s total expense ratio was higher than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $500 million. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
MFS Emerging Markets Equity Portfolio
Board Review of Investment Advisory Agreement - continued
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2023.
MFS Emerging Markets Equity Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
Income derived from foreign sources was $1,415,989. The fund intends to pass through foreign tax credits of $123,357 for the fiscal year.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2023
MFS® Global
Governments Portfolio
MFS® Variable Insurance Trust II
MFS® Global Governments Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Global Governments Portfolio
Portfolio structure at value (v)
Portfolio structure reflecting equivalent exposure of derivative positions (i)
Fixed income sectors (i)
| Non-U.S. Government Bonds | 55.5% |
| U.S. Treasury Securities | 53.3% |
| Emerging Markets Bonds | 10.0% |
| Mortgage-Backed Securities | 0.4% |
| Municipal Bonds | 0.3% |
| Investment Grade Corporates | 0.2% |
| Commercial Mortgage-Backed Securities | 0.2% |
| U.S. Government Agencies | 0.2% |
Composition including fixed income credit quality (a)(i)
| AAA | 10.8% |
| AA | 14.0% |
| A | 7.5% |
| BBB | 13.8% |
| BB | 2.6% |
| U.S. Government | 39.7% |
| Federal Agencies | 0.6% |
| Not Rated | 31.1% |
| Cash & Cash Equivalents | 6.5% |
| Other (q) | (26.6)% |
Portfolio facts
| Average Duration (d) | 8.0 |
| Average Effective Maturity (m) | 9.7 yrs. |
Issuer country weightings (i)(x)
| United States | 34.4% |
| Germany | 18.4% |
| Japan | 10.6% |
| United Kingdom | 6.5% |
| Italy | 5.2% |
| Canada | 4.1% |
| Spain | 3.4% |
| Greece | 2.9% |
| Supranational | 2.9% |
| Other Countries | 11.6% |
Currency exposure weightings (i)(y)
| United States Dollar | 46.8% |
| Euro | 23.1% |
| Japanese Yen | 18.7% |
| British Pound Sterling | 6.2% |
| Australian Dollar | 1.7% |
| Canadian Dollar | 1.5% |
| Mexican Peso | 0.7% |
| Brazilian Real | 0.5% |
| Norwegian Krone | 0.5% |
| Other Currencies | 0.3% |
| (a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities and fixed income derivatives that have not been rated by any rating agency. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
MFS Global Governments Portfolio
Portfolio Composition - continued
| (d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move. The Average Duration calculation reflects the impact of the equivalent exposure of derivative positions, if any. |
| (i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
| (m) | In determining each instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening feature (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
| (p) | For purposes of the presentation of Portfolio structure at value, Other includes market value from currency derivatives and may be negative. |
| (q) | For purposes of this presentation, Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative. |
| (v) | For purposes of this presentation, market value of fixed income and/or equity derivatives, if any, is included in Cash & Cash Equivalents. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents and Other. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2023.
The portfolio is actively managed and current holdings may be different.
MFS Global Governments Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2023, Initial Class shares of the MFS Global Governments Portfolio (fund) provided a total return of 2.32%, while Service Class shares of the fund provided a total return of 2.01%. These compare with a return of 4.02% for the fund’s benchmark, the JPMorgan Global Government Bond Index (Unhedged).
Market Environment
During the reporting period, central banks around the world had to combat the strongest inflationary pressures in four decades, fueled by the global fiscal response to the pandemic, disrupted supply chains and the dislocations to energy markets stemming from the war in Ukraine. Interest rates rose substantially, but the effects of a tighter monetary policy may not have been fully experienced yet, given that monetary policy works with long and variable lags. Strains resulting from the abrupt tightening of monetary policy began to affect some parts of the economy, most acutely among small and regional US banks, which suffered from deposit flight as depositors sought higher yields on their savings. Additionally, activity in the US housing sector has slowed as a result of higher mortgage rates. China’s abandonment of its Zero-COVID policy ushered in a brief uptick in economic activity in the world’s second-largest economy in early 2023, although its momentum soon stalled as the focus turned to the country’s highly indebted property development sector. In developed markets, consumer demand for services remained stronger than the demand for goods.
Early on, policymakers found themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, central banks focused on controlling price pressures while also confronting increasing financial stability concerns. Central banks had to juggle achieving their inflation mandates while using macroprudential tools (financial policies aimed at safeguarding the stability of the financial system) to keep banking systems liquid, a potentially difficult balancing act, and one that suggested that we may be nearing a peak in policy rates. As inflationary pressures eased toward the end of the period, financial conditions loosened in anticipation of easier monetary policy, boosting the market’s appetite for risk. Rapid advancements in artificial intelligence were a focus for investors.
Normalizing supply chains, low levels of unemployment across developed markets and signs that inflation levels have peaked were supportive factors for the macroeconomic backdrop.
Factors Affecting Performance
Relative to the JPMorgan Global Government Bond Index (Unhedged), the fund’s US yield curve(y) positioning and long duration(d) stance detracted from performance. The fund’s overweight exposure to the Japanese yen and euro, also hindered relative returns as these currencies depreciated against the US dollar over the reporting period. Additionally, an underweight allocation to Italian-issued debt further held back the fund’s relative performance.
Conversely, the fund’s overweight exposure to both Greek and Uruguay-issued bonds, for which the benchmark has no exposure, supported relative performance.
Respectfully,
Portfolio Manager(s)
Annalisa Piazza, Robert Spector, and Erik Weisman
Note to Shareholders: Effective September 1, 2023, Annalisa Piazza was added as a Portfolio Manager of the fund.
| (d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value. |
| (y) | A yield curve graphically depicts the yields of different maturity bonds of the same credit quality and type; a normal yield curve is upward sloping, with short-term rates lower than long-term rates. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Global Governments Portfolio
Performance Summary Through 12/31/23
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/23
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 5/16/1988 | 2.32% | (1.66)% | (0.54)% |
| Service Class | 8/24/2001 | 2.01% | (1.91)% | (0.79)% |
Comparative benchmark(s)
| JPMorgan Global Government Bond Index (Unhedged) (f) | 4.02% | (1.31)% | (0.11)% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
JPMorgan Global Government Bond Index (Unhedged) – measures developed government bond markets around the world.
It is not possible to invest directly in an index.
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Global Governments Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2023 through December 31, 2023
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2023 through December 31, 2023.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/23 | Ending
Account Value
12/31/23 | Expenses
Paid During
Period (p)
7/01/23-12/31/23 |
| Initial Class | Actual | 0.71% | $1,000.00 | $1,029.21 | $3.63 |
| Hypothetical (h) | 0.71% | $1,000.00 | $1,021.63 | $3.62 |
| Service Class | Actual | 0.96% | $1,000.00 | $1,027.45 | $4.91 |
| Hypothetical (h) | 0.96% | $1,000.00 | $1,020.37 | $4.89 |
| (h) | 5% fund return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
Notes to Expense Table
Changes to the fund's fee arrangements occured during the six month period. Had these fee changes been in effect throughout the entire six month period, the annualized expense ratios, the actual expenses paid during the period, and the hypothetical expenses paid during the period would have been approximately 0.69%, $3.53, and $3.52 for Initial Class and 0.94%, $4.80, and $4.79 for Service Class, respectively. For further information about the fund’s fee arrangements and changes to those fee arrangements, please see Note 3 in the Notes to Financial Statements.
MFS Global Governments Portfolio
Portfolio of Investments − 12/31/23
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Bonds – 92.7% |
| Foreign Bonds – 52.2% |
| Australia – 1.2% |
| Commonwealth of Australia, 3.25%, 6/21/2039 | | AUD | 1,845,000 | $ 1,124,470 |
| Belgium – 1.3% |
| Kingdom of Belgium, 0.4%, 6/22/2040 | | EUR | 925,000 | $ 680,513 |
| Kingdom of Belgium, 1.6%, 6/22/2047 | | | 590,000 | 489,725 |
| | | | | $1,170,238 |
| Brazil – 2.5% |
| Federative Republic of Brazil, 10%, 1/01/2027 | | BRL | 6,000,000 | $ 1,240,448 |
| Federative Republic of Brazil, 10%, 1/01/2029 | | | 4,800,000 | 984,645 |
| | | | | $2,225,093 |
| Canada – 4.1% |
| Government of Canada, 0.5%, 12/01/2030 | | CAD | 3,580,000 | $ 2,268,986 |
| Government of Canada, 2%, 6/01/2032 | | | 1,735,000 | 1,202,657 |
| OMERS Finance Trust Anleihen, 5.5%, 11/15/2033 (n) | | $ | 250,000 | 264,706 |
| | | | | $3,736,349 |
| Czech Republic – 1.0% |
| Czech Republic, 2.5%, 8/25/2028 | | CZK | 22,000,000 | $ 931,986 |
| France – 2.4% |
| Republic of France, 2.5%, 5/25/2030 | | EUR | 670,000 | $ 749,478 |
| Republic of France, 3%, 5/25/2033 | | | 1,100,000 | 1,263,181 |
| Republic of France, 1.25%, 5/25/2038 | | | 200,000 | 179,795 |
| | | | | $2,192,454 |
| Germany – 4.9% |
| Federal Republic of Germany, 0.5%, 2/15/2028 | | EUR | 2,625,000 | $ 2,735,836 |
| Federal Republic of Germany, 2.6%, 8/15/2033 | | | 1,500,000 | 1,738,635 |
| | | | | $4,474,471 |
| Greece – 2.9% |
| Hellenic Republic (Republic of Greece), 4.25%, 6/15/2033 (n) | | EUR | 1,450,000 | $ 1,746,117 |
| Hellenic Republic (Republic of Greece), 4.375%, 7/18/2038 | | | 700,000 | 849,059 |
| | | | | $2,595,176 |
| Italy – 5.2% |
| Republic of Italy, 4.1%, 2/01/2029 | | EUR | 1,560,000 | $ 1,805,790 |
| Republic of Italy, 0.6%, 8/01/2031 (n) | | | 1,525,000 | 1,375,540 |
| Republic of Italy, 3.35%, 3/01/2035 (n) | | | 1,395,000 | 1,481,367 |
| | | | | $4,662,697 |
| Japan – 10.6% |
| Government of Japan, 2.1%, 12/20/2027 | | JPY | 560,000,000 | $ 4,279,393 |
| Government of Japan, 0.4%, 9/20/2040 | | | 460,000,000 | 2,859,308 |
| Government of Japan, 1.5%, 12/20/2044 | | | 97,000,000 | 695,043 |
| Government of Japan, 0.6%, 9/20/2050 | | | 238,000,000 | 1,317,102 |
| Government of Japan, 0.9%, 3/20/2057 | | | 81,000,000 | 459,752 |
| | | | | $9,610,598 |
MFS Global Governments Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Foreign Bonds – continued |
| Luxembourg – 0.6% |
| European Union, 2.625%, 2/04/2048 | | EUR | 515,000 | $ 528,794 |
| Mexico – 2.4% |
| United Mexican States, 7.5%, 6/03/2027 | | MXN | 9,000,000 | $ 501,776 |
| United Mexican States, 8.5%, 5/31/2029 | | | 10,000,000 | 576,044 |
| United Mexican States, 7.5%, 5/26/2033 | | | 20,400,000 | 1,087,996 |
| | | | | $2,165,816 |
| Peru – 0.6% |
| Republic of Peru, 6.95%, 8/12/2031 | | PEN | 2,000,000 | $ 557,956 |
| Spain – 3.3% |
| Kingdom of Spain, 3.8%, 4/30/2024 | | EUR | 1,000,000 | $ 1,103,796 |
| Kingdom of Spain, 2.55%, 10/31/2032 | | | 690,000 | 743,048 |
| Kingdom of Spain, 4.7%, 7/30/2041 | | | 615,000 | 793,465 |
| Kingdom of Spain, 1%, 10/31/2050 | | | 550,000 | 342,627 |
| | | | | $2,982,936 |
| Supranational – 2.3% |
| European Financial Stability Facility, 3%, 9/04/2034 | | EUR | 1,840,000 | $ 2,080,161 |
| United Kingdom – 6.5% |
| United Kingdom Treasury, 4.5%, 6/07/2028 | | GBP | 1,910,000 | $ 2,537,321 |
| United Kingdom Treasury, 0.375%, 10/22/2030 | | | 620,000 | 647,534 |
| United Kingdom Treasury, 0.875%, 7/31/2033 | | | 1,050,000 | 1,047,689 |
| United Kingdom Treasury, 1.75%, 9/07/2037 | | | 792,000 | 782,986 |
| United Kingdom Treasury, 3.75%, 7/22/2052 | | | 249,000 | 297,992 |
| United Kingdom Treasury, 4%, 1/22/2060 | | | 275,000 | 346,878 |
| United Kingdom Treasury, 3.5%, 7/22/2068 | | | 165,000 | 189,018 |
| | | | | $5,849,418 |
| Uruguay – 0.4% |
| Oriental Republic of Uruguay, 8.25%, 5/21/2031 | | UYU | 15,991,000 | $ 377,545 |
| Total Foreign Bonds | | | $47,266,158 |
| U.S. Bonds – 40.5% |
| Asset-Backed & Securitized – 0.2% |
| 3650R Commercial Mortgage Trust, 2021-PF1, “XA”, 1.018%, 11/15/2054 (i) | | $ | 1,025,006 | $ 50,434 |
| Arbor Multi-Family Mortgage Securities Trust, 2021-MF3, “XA”, 0.74%, 10/15/2054 (i)(n) | | | 3,159,908 | 117,493 |
| | | | | $167,927 |
| Consumer Services – 0.1% |
| Conservation Fund, 3.474%, 12/15/2029 | | $ | 158,000 | $ 139,367 |
| Industrial – 0.0% |
| Howard University, Washington D.C., AGM, 2.516%, 10/01/2025 | | $ | 42,000 | $ 40,483 |
| Mortgage-Backed – 0.4% |
| Freddie Mac, 1.169%, 9/25/2030 (i) | | $ | 329,805 | $ 21,566 |
| Freddie Mac, 0.536%, 9/25/2031 (i) | | | 2,295,212 | 76,860 |
| Freddie Mac, 0.855%, 9/25/2031 (i) | | | 706,831 | 37,512 |
| Freddie Mac, 0.349%, 11/25/2031 (i) | | | 3,422,551 | 79,846 |
| Freddie Mac, 0.498%, 12/25/2031 (i) | | | 3,444,413 | 110,838 |
MFS Global Governments Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| U.S. Bonds – continued |
| Mortgage-Backed – continued |
| Freddie Mac, 0.568%, 12/25/2031 (i) | | $ | 568,544 | $ 20,508 |
| | | | | $347,130 |
| Municipals – 0.3% |
| Massachusetts Educational Financing Authority, Education Loan Rev., Taxable, “A”, 2.682%, 7/01/2027 | | $ | 100,000 | $ 93,535 |
| West Virginia Tobacco Settlement Financing Authority Asset-Backed Refunding, Taxable, “A-1”, 1.497%, 6/01/2024 | | | 80,000 | 78,701 |
| West Virginia Tobacco Settlement Financing Authority Asset-Backed Refunding, Taxable, “A-1”, 1.647%, 6/01/2025 | | | 65,000 | 61,712 |
| | | | | $233,948 |
| U.S. Government Agencies and Equivalents – 0.2% |
| Small Business Administration, 4.57%, 6/01/2025 | | $ | 532 | $ 528 |
| Small Business Administration, 5.09%, 10/01/2025 | | | 492 | 485 |
| Small Business Administration, 5.21%, 1/01/2026 | | | 9,576 | 9,468 |
| Small Business Administration, 2.22%, 3/01/2033 | | | 168,661 | 155,274 |
| | | | | $165,755 |
| U.S. Treasury Obligations – 39.3% |
| U.S. Treasury Bonds, 0.25%, 6/15/2024 | | $ | 2,350,000 | $ 2,298,686 |
| U.S. Treasury Bonds, 3.125%, 8/31/2029 | | | 3,015,000 | 2,895,696 |
| U.S. Treasury Bonds, 3.5%, 2/15/2033 | | | 7,220,000 | 7,001,426 |
| U.S. Treasury Bonds, 4.5%, 8/15/2039 (f) | | | 3,856,400 | 4,080,854 |
| U.S. Treasury Bonds, 2.75%, 11/15/2042 | | | 1,976,000 | 1,597,858 |
| U.S. Treasury Bonds, 2.5%, 2/15/2045 | | | 1,160,000 | 878,383 |
| U.S. Treasury Bonds, 3%, 2/15/2049 | | | 2,570,000 | 2,091,237 |
| U.S. Treasury Bonds, 4.125%, 8/15/2053 | | | 750,000 | 758,086 |
| U.S. Treasury Notes, 2.375%, 5/15/2027 | | | 3,710,000 | 3,523,775 |
| U.S. Treasury Notes, 2.875%, 8/15/2028 (f) | | | 8,110,000 | 7,761,207 |
| U.S. Treasury Notes, 0.625%, 8/15/2030 | | | 1,740,000 | 1,411,371 |
| U.S. Treasury Notes, 1.25%, 8/15/2031 | | | 1,525,000 | 1,261,878 |
| | | | | $35,560,457 |
| Total U.S. Bonds | | | | $36,655,067 |
| Total Bonds (Identified Cost, $85,797,166) | | $83,921,225 |
| Investment Companies (h) – 6.9% |
| Money Market Funds – 6.9% | |
| MFS Institutional Money Market Portfolio, 5.42% (v) (Identified Cost, $6,217,671) | | | 6,217,142 | $ 6,218,386 |
| Other Assets, Less Liabilities – 0.4% | | 387,250 |
| Net Assets – 100.0% | | $90,526,861 |
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts. |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $6,218,386 and $83,921,225, respectively. |
| (i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. |
| (n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $4,985,223, representing 5.5% of net assets. |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
| The following abbreviations are used in this report and are defined: |
| AGM | Assured Guaranty Municipal |
MFS Global Governments Portfolio
Portfolio of Investments – continued
| Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below: |
| AUD | Australian Dollar |
| BRL | Brazilian Real |
| CAD | Canadian Dollar |
| CNH | Chinese Yuan Renminbi (Offshore) |
| CZK | Czech Koruna |
| DKK | Danish Krone |
| EUR | Euro |
| GBP | British Pound |
| JPY | Japanese Yen |
| KRW | South Korean Won |
| MXN | Mexican Peso |
| NOK | Norwegian Krone |
| NZD | New Zealand Dollar |
| PEN | Peruvian Nuevo Sol |
| SEK | Swedish Krona |
| TWD | Taiwan Dollar |
| UYU | Uruguayan Peso |
| Derivative Contracts at 12/31/23 |
| Forward Foreign Currency Exchange Contracts |
Currency
Purchased | Currency
Sold | Counterparty | Settlement Date | Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| AUD | 982,825 | USD | 637,641 | Brown Brothers Harriman | 1/19/2024 | $32,450 |
| AUD | 334,394 | USD | 224,343 | HSBC Bank | 1/19/2024 | 3,647 |
| AUD | 65,254 | USD | 42,105 | JPMorgan Chase Bank N.A. | 1/19/2024 | 2,386 |
| AUD | 2,308,947 | USD | 1,483,481 | Morgan Stanley Capital Services, Inc. | 1/19/2024 | 90,763 |
| BRL | 681,245 | USD | 138,413 | Goldman Sachs International | 2/16/2024 | 1,350 |
| CAD | 218,002 | USD | 163,973 | Barclays Bank PLC | 1/19/2024 | 591 |
| CAD | 296,331 | USD | 218,415 | Deutsche Bank AG | 1/19/2024 | 5,278 |
| CAD | 2,621,025 | USD | 1,928,078 | UBS AG | 1/19/2024 | 50,471 |
| CNH | 5,258,698 | USD | 720,913 | Barclays Bank PLC | 1/19/2024 | 17,890 |
| DKK | 1,485,214 | USD | 211,722 | State Street Bank Corp. | 1/19/2024 | 8,398 |
| EUR | 259,990 | USD | 282,984 | Barclays Bank PLC | 1/19/2024 | 4,211 |
| EUR | 66,013 | USD | 72,848 | BNP Paribas S.A. | 1/19/2024 | 72 |
| EUR | 1,283,159 | USD | 1,396,232 | HSBC Bank | 1/19/2024 | 21,192 |
| EUR | 396,728 | USD | 426,438 | JPMorgan Chase Bank N.A. | 1/19/2024 | 11,803 |
| EUR | 697,673 | USD | 737,847 | Morgan Stanley Capital Services, Inc. | 1/19/2024 | 32,829 |
| EUR | 82,868 | USD | 91,117 | State Street Bank Corp. | 1/19/2024 | 422 |
| EUR | 219,181 | USD | 234,822 | UBS AG | 1/19/2024 | 7,294 |
| GBP | 318,040 | USD | 403,788 | Barclays Bank PLC | 1/19/2024 | 1,637 |
| GBP | 172,005 | USD | 212,373 | Brown Brothers Harriman | 1/19/2024 | 6,892 |
| GBP | 21,525 | USD | 27,243 | Deutsche Bank AG | 1/19/2024 | 196 |
| GBP | 703,399 | USD | 875,264 | JPMorgan Chase Bank N.A. | 1/19/2024 | 21,401 |
| GBP | 41,495 | USD | 52,448 | Merrill Lynch International | 1/19/2024 | 449 |
| GBP | 516,399 | USD | 651,607 | Morgan Stanley Capital Services, Inc. | 1/19/2024 | 6,678 |
| GBP | 311,759 | USD | 391,306 | UBS AG | 1/19/2024 | 6,112 |
| JPY | 390,602,740 | USD | 2,652,598 | Barclays Bank PLC | 1/19/2024 | 123,732 |
| JPY | 13,022,600 | USD | 91,971 | Deutsche Bank AG | 1/19/2024 | 591 |
| JPY | 411,191,146 | USD | 2,761,835 | HSBC Bank | 1/19/2024 | 160,834 |
| JPY | 51,717,349 | USD | 350,049 | JPMorgan Chase Bank N.A. | 1/19/2024 | 17,548 |
| JPY | 53,166,884 | USD | 358,512 | Merrill Lynch International | 1/19/2024 | 19,389 |
| JPY | 274,171,613 | USD | 1,837,918 | Morgan Stanley Capital Services, Inc. | 1/19/2024 | 110,842 |
| JPY | 31,973,686 | USD | 221,521 | NatWest Markets PLC | 1/19/2024 | 5,742 |
| KRW | 2,832,050,000 | USD | 2,201,189 | Barclays Bank PLC | 2/16/2024 | 3,314 |
MFS Global Governments Portfolio
Portfolio of Investments – continued
| Forward Foreign Currency Exchange Contracts - continued |
Currency
Purchased | Currency
Sold | Counterparty | Settlement Date | Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives - continued |
| KRW | 597,838,157 | USD | 458,345 | Morgan Stanley Capital Services, Inc. | 1/09/2024 | $6,037 |
| MXN | 591,469 | USD | 33,932 | Brown Brothers Harriman | 1/19/2024 | 811 |
| MXN | 2,993,979 | USD | 172,658 | Goldman Sachs International | 1/19/2024 | 3,211 |
| NOK | 2,337,371 | USD | 227,820 | Deutsche Bank AG | 1/19/2024 | 2,331 |
| NOK | 9,422,527 | USD | 861,887 | Merrill Lynch International | 1/19/2024 | 65,906 |
| NZD | 1,068,971 | USD | 656,865 | Brown Brothers Harriman | 1/19/2024 | 18,918 |
| NZD | 356,101 | USD | 212,790 | Merrill Lynch International | 1/19/2024 | 12,330 |
| NZD | 4,538,761 | USD | 2,671,973 | Morgan Stanley Capital Services, Inc. | 1/19/2024 | 197,341 |
| SEK | 11,648,237 | USD | 1,078,666 | Brown Brothers Harriman | 1/19/2024 | 76,952 |
| SEK | 21,494,553 | USD | 2,020,317 | UBS AG | 1/19/2024 | 112,151 |
| USD | 252,733 | CZK | 5,650,824 | Brown Brothers Harriman | 1/19/2024 | 181 |
| | | | | | | $1,272,573 |
| Liability Derivatives |
| EUR | 114,868 | USD | 127,690 | Morgan Stanley Capital Services, Inc. | 1/19/2024 | $(802) |
| GBP | 142,417 | USD | 182,159 | Morgan Stanley Capital Services, Inc. | 1/19/2024 | (612) |
| GBP | 1,755,271 | USD | 2,243,177 | UBS AG | 1/19/2024 | (5,626) |
| USD | 435,356 | AUD | 657,474 | BNP Paribas S.A. | 1/19/2024 | (12,911) |
| USD | 438,503 | AUD | 666,339 | Brown Brothers Harriman | 1/19/2024 | (15,808) |
| USD | 25,171 | AUD | 39,528 | JPMorgan Chase Bank N.A. | 1/19/2024 | (1,779) |
| USD | 1,119,583 | AUD | 1,764,651 | State Street Bank Corp. | 1/19/2024 | (83,559) |
| USD | 1,388,096 | BRL | 6,845,813 | Citibank N.A. | 2/02/2024 | (18,918) |
| USD | 562,922 | BRL | 2,768,502 | Goldman Sachs International | 2/22/2024 | (4,533) |
| USD | 546,088 | CAD | 745,769 | Morgan Stanley Capital Services, Inc. | 1/19/2024 | (16,875) |
| USD | 33,526 | CAD | 46,262 | NatWest Markets PLC | 1/19/2024 | (1,396) |
| USD | 2,762,237 | CAD | 3,797,714 | State Street Bank Corp. | 1/19/2024 | (104,565) |
| USD | 1,005,328 | CAD | 1,369,778 | UBS AG | 1/19/2024 | (28,684) |
| USD | 721,377 | CNH | 5,258,697 | Barclays Bank PLC | 1/19/2024 | (17,425) |
| USD | 219,604 | CZK | 4,987,486 | Brown Brothers Harriman | 1/19/2024 | (3,301) |
| USD | 876,314 | CZK | 20,466,752 | HSBC Bank | 1/19/2024 | (38,405) |
| USD | 219,482 | EUR | 203,896 | Brown Brothers Harriman | 1/19/2024 | (5,750) |
| USD | 179,405 | EUR | 164,038 | HSBC Bank | 1/19/2024 | (1,798) |
| USD | 505,441 | EUR | 473,896 | JPMorgan Chase Bank N.A. | 1/19/2024 | (18,042) |
| USD | 810,841 | EUR | 762,561 | Merrill Lynch International | 1/19/2024 | (31,513) |
| USD | 1,741,445 | EUR | 1,590,321 | State Street Bank Corp. | 1/19/2024 | (15,285) |
| USD | 16,648 | GBP | 13,733 | Merrill Lynch International | 1/19/2024 | (858) |
| USD | 4,724,534 | GBP | 3,875,079 | State Street Bank Corp. | 1/19/2024 | (215,266) |
| USD | 411,946 | GBP | 339,987 | UBS AG | 1/19/2024 | (21,456) |
| USD | 283,016 | JPY | 41,267,717 | Deutsche Bank AG | 1/19/2024 | (10,307) |
| USD | 119,036 | JPY | 17,583,744 | Merrill Lynch International | 1/19/2024 | (5,946) |
| USD | 152,684 | JPY | 22,574,740 | Morgan Stanley Capital Services, Inc. | 1/19/2024 | (7,773) |
| USD | 560,061 | JPY | 80,142,484 | State Street Bank Corp. | 1/19/2024 | (9,577) |
| USD | 218,642 | JPY | 30,778,391 | UBS AG | 1/19/2024 | (125) |
| USD | 445,877 | KRW | 575,033,958 | Barclays Bank PLC | 2/16/2024 | (1,737) |
| USD | 1,217,025 | KRW | 1,610,635,597 | Citibank N.A. | 1/26/2024 | (35,196) |
| USD | 51,747 | KRW | 66,679,324 | Morgan Stanley Capital Services, Inc. | 1/09/2024 | (47) |
| USD | 873,381 | KRW | 1,174,460,000 | Morgan Stanley Capital Services, Inc. | 1/26/2024 | (39,727) |
| USD | 1,032,856 | MXN | 19,066,828 | HSBC Bank | 1/19/2024 | (87,143) |
| USD | 582,721 | MXN | 10,065,196 | UBS AG | 1/19/2024 | (8,516) |
| USD | 655,625 | NOK | 7,120,933 | Deutsche Bank AG | 1/19/2024 | (45,541) |
| USD | 423,410 | NZD | 716,291 | Morgan Stanley Capital Services, Inc. | 1/19/2024 | (29,415) |
| USD | 3,326,240 | NZD | 5,617,226 | State Street Bank Corp. | 1/19/2024 | (224,857) |
| USD | 36,325 | PEN | 134,708 | Goldman Sachs International | 2/29/2024 | (25) |
MFS Global Governments Portfolio
Portfolio of Investments – continued
| Forward Foreign Currency Exchange Contracts - continued |
Currency
Purchased | Currency
Sold | Counterparty | Settlement Date | Unrealized
Appreciation
(Depreciation) |
| Liability Derivatives - continued |
| USD | 511,315 | PEN | 1,986,508 | Merrill Lynch International | 2/29/2024 | $(24,733) |
| USD | 25,266 | SEK | 279,738 | Brown Brothers Harriman | 1/19/2024 | (2,487) |
| USD | 2,682,212 | SEK | 29,135,515 | UBS AG | 1/19/2024 | (208,314) |
| USD | 900 | TWD | 29,000 | Barclays Bank PLC | 1/30/2024 | (48) |
| | | | | | | $(1,406,681) |
| Futures Contracts |
| Description | Long/
Short | Currency | Contracts | Notional
Amount | Expiration
Date | Value/Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| Interest Rate Futures | | |
| Euro-Bobl 5 yr | Long | EUR | 43 | $5,662,205 | March - 2024 | $60,227 |
| Euro-Schatz 2 yr | Long | EUR | 64 | 7,527,703 | March - 2024 | 30,944 |
| U.S. Treasury Note 2 yr | Long | USD | 60 | 12,354,844 | March - 2024 | 126,758 |
| | | | | | | $217,929 |
| Liability Derivatives |
| Interest Rate Futures | | |
| Australian Bond 10 yr | Short | AUD | 6 | $477,011 | March - 2024 | $(12,179) |
| Euro-Bund 10 yr | Short | EUR | 4 | 605,936 | March - 2024 | (6,854) |
| Euro-Buxl 30 yr | Short | EUR | 3 | 469,355 | March - 2024 | (30,012) |
| | | | | | | $(49,045) |
At December 31, 2023, the fund had liquid securities with an aggregate value of $198,989 to cover any collateral or margin obligations for certain derivative contracts.
See Notes to Financial Statements
MFS Global Governments Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/23Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $85,797,166) | $83,921,225 |
| Investments in affiliated issuers, at value (identified cost, $6,217,671) | 6,218,386 |
| Receivables for | |
| Forward foreign currency exchange contracts | 1,272,573 |
| Net daily variation margin on open futures contracts | 619 |
| Fund shares sold | 948 |
| Interest | 818,161 |
| Receivable from investment adviser | 15,638 |
| Other assets | 748 |
| Total assets | $92,248,298 |
| Liabilities | |
| Payables for | |
| Forward foreign currency exchange contracts | $1,406,681 |
| Investments purchased | 218,162 |
| Fund shares reacquired | 26,128 |
| Payable to affiliates | |
| Administrative services fee | 246 |
| Distribution and/or service fees | 14 |
| Payable for independent Trustees' compensation | 189 |
| Payable for audit and tax fees | 45,132 |
| Accrued expenses and other liabilities | 24,885 |
| Total liabilities | $1,721,437 |
| Net assets | $90,526,861 |
| Net assets consist of | |
| Paid-in capital | $106,862,007 |
| Total distributable earnings (loss) | (16,335,146) |
| Net assets | $90,526,861 |
| Shares of beneficial interest outstanding | 10,277,226 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $90,033,505 | 10,219,950 | $8.81 |
| Service Class | 493,356 | 57,276 | 8.61 |
See Notes to Financial Statements
MFS Global Governments Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/23 | |
| Net investment income (loss) | |
| Income | |
| Interest | $2,472,801 |
| Dividends from affiliated issuers | 210,167 |
| Other | 151 |
| Total investment income | $2,683,119 |
| Expenses | |
| Management fee | $675,085 |
| Distribution and/or service fees | 1,243 |
| Shareholder servicing costs | 447 |
| Administrative services fee | 23,277 |
| Independent Trustees' compensation | 3,740 |
| Custodian fee | 25,640 |
| Audit and tax fees | 84,001 |
| Legal fees | 488 |
| Miscellaneous | 27,835 |
| Total expenses | $841,756 |
| Reduction of expenses by investment adviser | (178,152) |
| Net expenses | $663,604 |
| Net investment income (loss) | $2,019,515 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $(6,587,985) |
| Affiliated issuers | 1,906 |
| Futures contracts | (667,093) |
| Forward foreign currency exchange contracts | (222,855) |
| Foreign currency | (12,535) |
| Net realized gain (loss) | $(7,488,562) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $7,731,506 |
| Affiliated issuers | (1,131) |
| Futures contracts | 69,447 |
| Forward foreign currency exchange contracts | (333,310) |
| Translation of assets and liabilities in foreign currencies | (1,668) |
| Net unrealized gain (loss) | $7,464,844 |
| Net realized and unrealized gain (loss) | $(23,718) |
| Change in net assets from operations | $1,995,797 |
See Notes to Financial Statements
MFS Global Governments Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/23 | 12/31/22 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $2,019,515 | $550,333 |
| Net realized gain (loss) | (7,488,562) | (11,895,374) |
| Net unrealized gain (loss) | 7,464,844 | (9,205,589) |
| Change in net assets from operations | $1,995,797 | $(20,550,630) |
| Total distributions to shareholders | $— | $(1,547,064) |
| Change in net assets from fund share transactions | $(4,464,752) | $(8,328,600) |
| Total change in net assets | $(2,468,955) | $(30,426,294) |
| Net assets | | |
| At beginning of period | 92,995,816 | 123,422,110 |
| At end of period | $90,526,861 | $92,995,816 |
See Notes to Financial Statements
MFS Global Governments Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $8.61 | $10.57 | $11.69 | $10.71 | $10.34 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.19 | $0.05 | $0.03 | $0.05 | $0.11 |
| Net realized and unrealized gain (loss) | 0.01 | (1.87) | (0.89) | 1.08 | 0.53 |
| Total from investment operations | $0.20 | $(1.82) | $(0.86) | $1.13 | $0.64 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $— | $(0.14) | $(0.26) | $(0.15) | $(0.27) |
| Net asset value, end of period (x) | $8.81 | $8.61 | $10.57 | $11.69 | $10.71 |
| Total return (%) (k)(r)(s)(x) | 2.32 | (17.23) | (7.43) | 10.60 | 6.08 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.93 | 0.93 | 0.89 | 0.90 | 0.88 |
| Expenses after expense reductions | 0.74 | 0.76 | 0.76 | 0.83 | 0.87 |
| Net investment income (loss) | 2.25 | 0.53 | 0.31 | 0.46 | 1.01 |
| Portfolio turnover | 155 | 116 | 132 | 98 | 107 |
| Net assets at end of period (000 omitted) | $90,034 | $92,464 | $122,646 | $129,401 | $129,565 |
| Service Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $8.44 | $10.35 | $11.46 | $10.50 | $10.14 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.17 | $0.02 | $0.01 | $0.02 | $0.08 |
| Net realized and unrealized gain (loss) | (0.00)(w) | (1.82) | (0.89) | 1.06 | 0.51 |
| Total from investment operations | $0.17 | $(1.80) | $(0.88) | $1.08 | $0.59 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $— | $(0.11) | $(0.23) | $(0.12) | $(0.23) |
| Net asset value, end of period (x) | $8.61 | $8.44 | $10.35 | $11.46 | $10.50 |
| Total return (%) (k)(r)(s)(x) | 2.01 | (17.38) | (7.72) | 10.35 | 5.79 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.18 | 1.18 | 1.14 | 1.15 | 1.13 |
| Expenses after expense reductions | 0.99 | 1.01 | 1.01 | 1.08 | 1.12 |
| Net investment income (loss) | 1.99 | 0.28 | 0.06 | 0.20 | 0.76 |
| Portfolio turnover | 155 | 116 | 132 | 98 | 107 |
| Net assets at end of period (000 omitted) | $493 | $532 | $777 | $841 | $806 |
| (d) | Per share data is based on average shares outstanding. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (w) | Per share amount was less than $0.01. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS Global Governments Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Global Governments Portfolio (the fund) is a non-diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies
MFS Global Governments Portfolio
Notes to Financial Statements - continued
on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments, such as futures contracts and forward foreign currency exchange contracts. The following is a summary of the levels used as of December 31, 2023 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | $— | $35,726,212 | $— | $35,726,212 |
| Non - U.S. Sovereign Debt | — | 47,001,452 | — | 47,001,452 |
| Municipal Bonds | — | 233,948 | — | 233,948 |
| U.S. Corporate Bonds | — | 179,850 | — | 179,850 |
| Residential Mortgage-Backed Securities | — | 347,130 | — | 347,130 |
| Commercial Mortgage-Backed Securities | — | 167,927 | — | 167,927 |
| Foreign Bonds | — | 264,706 | — | 264,706 |
| Mutual Funds | 6,218,386 | — | — | 6,218,386 |
| Total | $6,218,386 | $83,921,225 | $— | $90,139,611 |
| Other Financial Instruments | | | | |
| Futures Contracts – Assets | $217,929 | $— | $— | $217,929 |
| Futures Contracts – Liabilities | (49,045) | — | — | (49,045) |
| Forward Foreign Currency Exchange Contracts – Assets | — | 1,272,573 | — | 1,272,573 |
| Forward Foreign Currency Exchange Contracts – Liabilities | — | (1,406,681) | — | (1,406,681) |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives — The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were futures contracts and forward foreign currency exchange contracts. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund's period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
MFS Global Governments Portfolio
Notes to Financial Statements - continued
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at December 31, 2023 as reported in the Statement of Assets and Liabilities:
| | | Fair Value (a) |
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Interest Rate | Futures Contracts | $217,929 | $(49,045) |
| Foreign Exchange | Forward Foreign Currency Exchange Contracts | 1,272,573 | (1,406,681) |
| Total | | $1,490,502 | $(1,455,726) |
(a) Values presented in this table for futures contracts correspond to the values reported in the Portfolio of Investments. Only the current day net variation margin for futures contracts is reported separately within the Statement of Assets and Liabilities.
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended December 31, 2023 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts |
| Interest Rate | $(667,093) | $— |
| Foreign Exchange | — | (222,855) |
| Total | $(667,093) | $(222,855) |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended December 31, 2023 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts |
| Interest Rate | $69,447 | $— |
| Foreign Exchange | — | (333,310) |
| Total | $69,447 | $(333,310) |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a credit support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
The following table presents the fund's derivative assets and liabilities (by type) on a gross basis as of December 31, 2023:
MFS Global Governments Portfolio
Notes to Financial Statements - continued
| Gross Amounts of: | Derivative Assets | Derivative Liabilities |
| Futures Contracts (a) | $619 | $— |
| Forward Foreign Currency Exchange Contracts | 1,272,573 | 1,406,681 |
Total Gross Amount of Derivative Assets
and Liabilities Presented in the
Statement of Assets & Liabilities | $1,273,192 | $1,406,681 |
Less: Derivative Assets and Liabilities Not Subject
to a Master Netting Agreement or
Similar Arrangement | 376,882 | 1,054,572 |
Total Gross Amount of Derivative Assets and
Liabilities Subject to a Master Netting Agreement or
Similar Arrangement | $896,310 | $352,109 |
(a) The amount presented here represents the fund's current day net variation margin for futures contracts . This amount, which is recognized within the Statement of Assets and Liabilities, differs from the fair value of the futures contracts which is presented in the tables that follow the Portfolio of Investments.
The following table presents (by counterparty) the fund's derivative assets net of amounts available for offset under Master Netting Agreements (or similar arrangements) and net of the related collateral held by the fund at December 31, 2023:
| | | Amounts Not Offset in the
Statement of Assets & Liabilities |
| | Gross Amount
of Derivative
Assets Subject
to a Master
Netting
Agreement (or
Similar
Arrangement)
by Counterparty | Financial
Instruments
Available
for Offset | Financial
Instruments
Collateral
Received (b) | Cash
Collateral
Received (b) | Net Amount
of Derivative
Assets by
Counterparty |
| Barclays Bank PLC | $151,375 | $(19,210) | $— | $— | $132,165 |
| BNP Paribas S.A. | 72 | (72) | — | — | — |
| Brown Brothers Harriman | 136,204 | (27,346) | — | — | 108,858 |
| Deutsche Bank AG | 8,396 | (8,396) | — | — | — |
| Goldman Sachs International | 4,561 | (4,558) | — | — | 3 |
| JPMorgan Chase Bank N.A. | 53,138 | (19,821) | — | — | 33,317 |
| Merrill Lynch International | 98,074 | (63,050) | — | — | 35,024 |
| Morgan Stanley Capital Services, Inc. | 444,490 | (95,251) | (301,994) | — | 47,245 |
| Total | $896,310 | $(237,704) | $(301,994) | $— | $356,612 |
The following table presents (by counterparty) the fund's derivative liabilities net of amounts available for offset under Master Netting Agreements (or similar arrangements) and net of the related collateral pledged by the fund at December 31, 2023:
MFS Global Governments Portfolio
Notes to Financial Statements - continued
| | | Amounts Not Offset in the
Statement of Assets & Liabilities |
| | Gross Amount
of Derivative
Liabilities Subject
to a Master
Netting
Agreement (or
Similar
Arrangement)
by Counterparty | Financial
Instruments
Available
for Offset | Financial
Instruments
Collateral
Pledged (b) | Cash
Collateral
Pledged (b) | Net Amount
of Derivative
Liabilities by
Counterparty |
| Barclays Bank PLC | $(19,210) | $19,210 | $— | $— | $— |
| BNP Paribas S.A. | (12,911) | 72 | — | — | (12,839) |
| Brown Brothers Harriman | (27,346) | 27,346 | — | — | — |
| Citibank N.A. | (54,114) | — | — | — | (54,114) |
| Deutsche Bank AG | (55,848) | 8,396 | — | — | (47,452) |
| Goldman Sachs International | (4,558) | 4,558 | — | — | — |
| JPMorgan Chase Bank N.A. | (19,821) | 19,821 | — | — | — |
| Merrill Lynch International | (63,050) | 63,050 | — | — | — |
| Morgan Stanley Capital Services, Inc. | (95,251) | 95,251 | — | — | — |
| Total | $(352,109) | $237,704 | $— | $— | $(114,405) |
(b) The amount presented here may be less than the total amount of collateral (received)/pledged as the excess collateral (received)/pledged is not shown for purposes of this presentation.
Futures Contracts — The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Forward Foreign Currency Exchange Contracts — The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on forward foreign currency exchange contracts.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
MFS Global Governments Portfolio
Notes to Financial Statements - continued
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Interest payments received in additional securities are recorded on the ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Investment transactions are recorded on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to net operating losses, amortization of premium and accretion of discount of debt securities, wash sale loss deferrals, and derivative transactions.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/23 | Year ended
12/31/22 |
| Ordinary income (including any short-term capital gains) | $— | $1,547,064 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/23 | |
| Cost of investments | $93,750,426 |
| Gross appreciation | 2,538,498 |
| Gross depreciation | (6,114,537) |
| Net unrealized appreciation (depreciation) | $(3,576,039) |
| Capital loss carryforwards | (12,766,865) |
| Other temporary differences | 7,758 |
| Total distributable earnings (loss) | $(16,335,146) |
As of December 31, 2023, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(5,959,264) |
| Long-Term | (6,807,601) |
| Total | $(12,766,865) |
MFS Global Governments Portfolio
Notes to Financial Statements - continued
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| Initial Class | $— | | $1,539,050 |
| Service Class | — | | 8,014 |
| Total | $— | | $1,547,064 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $300 million | 0.75% |
| In excess of $300 million and up to $1 billion | 0.675% |
| In excess of $1 billion | 0.625% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this management fee reduction amounted to $11,514, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.74% of the fund's average daily net assets.
For the period from January 1, 2023 through July 31, 2023, the investment adviser had agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses did not exceed 0.76% of average daily net assets for the Initial Class shares and 1.01% of average daily net assets for the Service Class shares. This written agreement terminated on July 31, 2023. For the period from January 1, 2023 through July 31, 2023, this reduction amounted to $86,959 which is included in the reduction of total expenses in the Statement of Operations. Effective August 1, 2023, the investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.69% of average daily net assets for the Initial Class shares and 0.94% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2025. For the period from August 1, 2023 through December 31, 2023, this reduction amounted to $79,679, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares as well as shareholder servicing and account maintenance activities. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. The distribution and/or service fees are computed daily and paid monthly.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2023, the fee was $265, which equated to 0.0003% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2023, these costs amounted to $182.
MFS Global Governments Portfolio
Notes to Financial Statements - continued
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is computed daily and paid monthly. The administrative services fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.0259% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
(4) Portfolio Securities
For the year ended December 31, 2023, purchases and sales of investments, other than short-term obligations, were as follows:
| | Purchases | Sales |
| U.S. Government securities | $31,580,092 | $28,730,380 |
| Non-U.S. Government securities | 99,340,621 | 101,934,356 |
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 288,426 | $2,441,491 | | 177,774 | $1,574,699 |
| Service Class | 8,189 | 68,510 | | 4,809 | 40,685 |
| | 296,615 | $2,510,001 | | 182,583 | $1,615,384 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | — | $— | | 175,091 | $1,539,050 |
| Service Class | — | — | | 929 | 8,014 |
| | — | $— | | 176,020 | $1,547,064 |
| Shares reacquired | | | | | |
| Initial Class | (802,938) | $(6,857,219) | | (1,224,784) | $(11,337,673) |
| Service Class | (13,944) | (117,534) | | (17,709) | (153,375) |
| | (816,882) | $(6,974,753) | | (1,242,493) | $(11,491,048) |
| Net change | | | | | |
| Initial Class | (514,512) | $(4,415,728) | | (871,919) | $(8,223,924) |
| Service Class | (5,755) | (49,024) | | (11,971) | (104,676) |
| | (520,267) | $(4,464,752) | | (883,890) | $(8,328,600) |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Conservative Allocation Portfolio, and the MFS Growth Allocation Portfolio were the owners of record of approximately 55%, 25%, and 13%, respectively, of the value of outstanding voting shares of the fund.
MFS Global Governments Portfolio
Notes to Financial Statements - continued
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 14, 2024 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2023, the fund’s commitment fee and interest expense were $479 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $8,089,199 | $67,263,541 | $69,135,129 | $1,906 | $(1,131) | $6,218,386 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $210,167 | $— |
MFS Global Governments Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Global Governments Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Global Governments Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 2024
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Global Governments Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2024, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 57) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 69) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 72) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 69) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 68) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 68) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 62) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 67) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 67) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 66) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 55) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
MFS Global Governments Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
John W. Clark, Jr. (k)
(age 56) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 55) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 56) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 47) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022) |
Amanda S. Mooradian (k)
(age 44) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 53) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 53) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
James O. Yost (k)
(age 63) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Caroselli, Jones and Otis are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
MFS Global Governments Portfolio
Trustees and Officers - continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Congress Street, Suite 1
Boston, MA 02114-2016 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Annalisa Piazza
Robert Spector
Erik Weisman | |
MFS Global Governments Portfolio
Board Review of Investment Advisory Agreement
MFS Global Governments Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2023 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2022 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2022, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 4th quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 3rd quintile for the one-year period and the 4th quintile for the three-year period ended December 31, 2022 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
The Trustees expressed continued concern to MFS about the substandard investment performance of the Fund. In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year, as to MFS’ efforts to improve the Fund’s performance. In addition, the Trustees requested that they receive a separate update on the Fund’s performance at each of their regular meetings. After reviewing these and related factors, the Trustees concluded, within the context
MFS Global Governments Portfolio
Board Review of Investment Advisory Agreement - continued
of their overall conclusions regarding the investment advisory agreement, that MFS’ responses and efforts and plans to improve investment performance were sufficient to support approval of the continuance of the investment advisory agreement for an additional one-year period, but that they would continue to closely monitor the performance of the Fund.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each higher than the Broadridge expense group median. The Trustees also noted that MFS has agreed to further reduce the expense limitation for the Fund effective August 1, 2023, which may not be changed without the Trustees’ approval.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $300 million and $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2023.
MFS Global Governments Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2023
MFS® Global Growth Portfolio
MFS® Variable Insurance Trust II
MFS® Global Growth Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Global Growth Portfolio
Portfolio structure
Top ten holdings
| Microsoft Corp. | 6.9% |
| Visa, Inc., “A” | 3.5% |
| Accenture PLC, “A” | 3.2% |
| Alphabet, Inc., “A” | 3.1% |
| Apple, Inc. | 2.6% |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | 2.5% |
| Canadian Pacific Kansas City Ltd. | 2.4% |
| Agilent Technologies, Inc. | 2.2% |
| Amphenol Corp., “A” | 2.1% |
| Tencent Holdings Ltd. | 2.1% |
GICS equity sectors (g)
| Information Technology | 27.4% |
| Financials | 14.4% |
| Industrials | 12.1% |
| Health Care | 11.8% |
| Consumer Discretionary | 11.1% |
| Communication Services | 9.6% |
| Consumer Staples | 8.2% |
| Materials | 2.1% |
| Real Estate | 1.6% |
| Utilities | 1.4% |
Issuer country weightings (x)
| United States | 69.9% |
| Canada | 5.9% |
| France | 3.8% |
| China | 3.4% |
| United Kingdom | 3.2% |
| Taiwan | 2.5% |
| South Korea | 2.4% |
| Switzerland | 2.3% |
| India | 1.9% |
| Other Countries | 4.7% |
Currency exposure weightings (y)
| United States Dollar | 73.4% |
| Euro | 6.5% |
| Canadian Dollar | 3.5% |
| British Pound Sterling | 3.2% |
| Taiwan Dollar | 2.5% |
| South Korean Won | 2.4% |
| Swiss Franc | 2.3% |
| Hong Kong Dollar | 2.1% |
| Indian Rupee | 1.9% |
| Other Currencies | 2.2% |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2023.
The portfolio is actively managed and current holdings may be different.
MFS Global Growth Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2023, Initial Class shares of the MFS Global Growth Portfolio (fund) provided a total return of 20.99%, while Service Class shares of the fund provided a total return of 20.69%. These compare with a return of 33.22% over the same period for the fund’s benchmark, the MSCI All Country World Growth Index (net div).
Market Environment
During the reporting period, central banks around the world had to combat the strongest inflationary pressures in four decades, fueled by the global fiscal response to the pandemic, disrupted supply chains and the dislocations to energy markets stemming from the war in Ukraine. Interest rates rose substantially, but the effects of a tighter monetary policy may not have been fully experienced yet, given that monetary policy works with long and variable lags. Strains resulting from the abrupt tightening of monetary policy began to affect some parts of the economy, most acutely among small and regional US banks, which suffered from deposit flight as depositors sought higher yields on their savings. Additionally, activity in the US housing sector has slowed as a result of higher mortgage rates. China’s abandonment of its Zero-COVID policy ushered in a brief uptick in economic activity in the world’s second-largest economy in early 2023, although its momentum soon stalled as the focus turned to the country’s highly indebted property development sector. In developed markets, consumer demand for services remained stronger than the demand for goods.
Early on, policymakers found themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, central banks focused on controlling price pressures while also confronting increasing financial stability concerns. Central banks had to juggle achieving their inflation mandates while using macroprudential tools (financial policies aimed at safeguarding the stability of the financial system) to keep banking systems liquid, a potentially difficult balancing act, and one that suggested that we may be nearing a peak in policy rates. As inflationary pressures eased toward the end of the period, financial conditions loosened in anticipation of easier monetary policy, boosting the market’s appetite for risk. Rapid advancements in artificial intelligence were a focus for investors.
Normalizing supply chains, low levels of unemployment across developed markets and signs that inflation levels have peaked were supportive factors for the macroeconomic backdrop.
Detractors from Performance
Relative to the MSCI All Country World Growth Index, the combination of security selection and an underweight position in the information technology sector detracted from the fund’s performance. Here, the timing of the fund’s ownership in shares of computer graphics processor maker NVIDIA and its underweight position in computer and personal electronics maker Apple detracted from relative returns. The stock price of NVIDIA climbed as the company reported earnings per share results well above expectations, primarily owing to stronger-than-expected revenue growth within its data center, generative AI, and networking segments. Revenue and earnings per share guidance were significantly above expectations, driven by continued robust demand related to generative AI.
Stock selection within the communication services sector also held back relative results. Within this sector, not owning shares of social networking service provider Meta and the fund’s overweight position in internet-based, multiple services company Tencent (China) weakened relative performance.
Security selection within the consumer discretionary sector also hindered the fund’s relative performance, particularly not holding shares of strong-performing internet retailer Amazon.com and electric vehicle manufacturer Tesla.
Elsewhere, the fund’s overweight positions in beauty products maker Estée Lauder Companies and transcontinental railway operator Canadian Pacific Kansas City (Canada), along with its holdings of spices, seasoning, and flavoring products manufacturer McCormick(b), detracted from relative returns. The stock price of Estée Lauder Companies declined as the firm lowered its sales outlook due to a slower-than-expected demand recovery from Chinese consumers. Excess inventory in the company’s Asia travel retail segment pressured the bottom line during the year, undercutting gains in its North American markets. Lastly, the timing of the fund’s ownership in shares of financial services provider Charles Schwab further weighed on relative performance.
Contributors to Performance
The combination of stock selection and an underweight position in the materials sector, combined with the fund’s avoidance of the energy sector, contributed to relative performance. There were no individual stocks within either sector, either in the fund or in the benchmark, that were among the fund's largest relative contributors for the reporting period.
Stocks in other sectors that positively impacted relative returns included the fund's overweight positions in software company Adobe Systems, technology company Alphabet, and technology research and advisory company Gartner. The stock price for Alphabet rose as the company reported better-than-expected revenue and robust margins. Financial results across the board were positive with strong revenue contributions from video website YouTube and cloud services. The company also benefited from a reduced employee headcount that helped lower its operating expenses. The fund’s holdings of diversified industrial manufacturer Eaton(b), clinical
MFS Global Growth Portfolio
Management Review - continued
research provider ICON(b) (Ireland), general merchandise discount retailer B&M European Value Retail(b) (United Kingdom), and online and mobile commerce company Alibaba Group Holding(b)(h) (China) were also among the fund’s top relative contributors. Avoiding shares of poor-performing building materials and home improvements retailer Home Depot and insurance company AIA Group aided relative performance. The timing of the fund’s ownership in shares of e-commerce platform manager Meituan(h) (China) further benefited relative returns. The share price of Meituan fell due to the impact on food delivery volume growth from a weak macro environment and increased investment in its in-store business due to competition.
Respectfully,
Portfolio Manager(s)
Jeffrey Constantino and Joseph Skorski
| (b) | Security is not a benchmark constituent. |
| (h) | Security was not held in the portfolio at period end. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Global Growth Portfolio
Performance Summary Through 12/31/23
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/23
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 11/16/1993 | 20.99% | 13.76% | 10.07% |
| Service Class | 8/24/2001 | 20.69% | 13.48% | 9.79% |
Comparative benchmark(s)
| MSCI All Country World Growth Index (net div) (f) | 33.22% | 14.58% | 10.06% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
MSCI All Country World Growth Index(e) (net div) – a market capitalization-weighted index that is designed to measure equity market performance for growth securities in the global developed and emerging markets.
It is not possible to invest directly in an index.
| (e) | Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
MFS Global Growth Portfolio
Performance Summary – continued
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Global Growth Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2023 through December 31, 2023
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2023 through December 31, 2023.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/23 | Ending
Account Value
12/31/23 | Expenses
Paid During
Period (p)
7/01/23-12/31/23 |
| Initial Class | Actual | 0.90% | $1,000.00 | $1,048.88 | $4.65 |
| Hypothetical (h) | 0.90% | $1,000.00 | $1,020.67 | $4.58 |
| Service Class | Actual | 1.15% | $1,000.00 | $1,047.73 | $5.94 |
| Hypothetical (h) | 1.15% | $1,000.00 | $1,019.41 | $5.85 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
Notes to Expense Table
Changes to the fund's fee arrangements occured during the six month period. Had these fee changes been in effect throughout the entire six month period, the annualized expense ratios, the actual expenses paid during the period, and the hypothetical expenses paid during the period would have been approximately 0.88%, $4.54, and $4.48 for Initial Class and 1.13%, $5.83, and $5.75 for Service Class, respectively. For further information about the fund’s fee arrangements and changes to those fee arrangements, please see Note 3 in the Notes to Financial Statements.
MFS Global Growth Portfolio
Portfolio of Investments − 12/31/23
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 99.7% |
| Alcoholic Beverages – 2.2% | |
| Diageo PLC | | 13,999 | $ 509,620 |
| Kweichow Moutai Co. Ltd., “A” | | 2,600 | 632,751 |
| | | | | $1,142,371 |
| Apparel Manufacturers – 4.5% | |
| Adidas AG | | 1,709 | $ 347,446 |
| Burberry Group PLC | | 15,965 | 288,153 |
| LVMH Moet Hennessy Louis Vuitton SE | | 1,075 | 870,597 |
| NIKE, Inc., “B” | | 7,161 | 777,470 |
| | | | | $2,283,666 |
| Automotive – 1.1% | |
| Aptiv PLC (a) | | 6,321 | $ 567,120 |
| Broadcasting – 1.1% | |
| Walt Disney Co. | | 6,071 | $ 548,151 |
| Brokerage & Asset Managers – 1.7% | |
| Brookfield Asset Management Ltd. | | 10,107 | $ 405,943 |
| Charles Schwab Corp. | | 6,797 | 467,633 |
| | | | | $873,576 |
| Business Services – 8.3% | |
| Accenture PLC, “A” | | 4,648 | $ 1,631,030 |
| CGI, Inc. (a) | | 7,675 | 822,208 |
| Equifax, Inc. | | 1,436 | 355,108 |
| Experian PLC | | 6,447 | 263,130 |
| Fiserv, Inc. (a) | | 5,487 | 728,893 |
| Thompson Reuters Corp. | | 1,601 | 234,075 |
| Verisk Analytics, Inc., “A” | | 835 | 199,448 |
| | | | | $4,233,892 |
| Computer Software – 7.9% | |
| Adobe Systems, Inc. (a) | | 872 | $ 520,235 |
| Microsoft Corp. | | 9,419 | 3,541,921 |
| | | | | $4,062,156 |
| Computer Software - Systems – 3.8% | |
| Apple, Inc. | | 6,779 | $ 1,305,161 |
| Cap Gemini S.A. | | 1,622 | 337,977 |
| Samsung Electronics Co. Ltd. | | 5,315 | 323,258 |
| | | | | $1,966,396 |
| Construction – 2.3% | |
| Otis Worldwide Corp. | | 6,138 | $ 549,167 |
| Sherwin-Williams Co. | | 1,971 | 614,755 |
| | | | | $1,163,922 |
| Consumer Products – 3.3% | |
| Church & Dwight Co., Inc. | | 10,073 | $ 952,503 |
| Estée Lauder Cos., Inc., “A” | | 4,880 | 713,700 |
| | | | | $1,666,203 |
MFS Global Growth Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Electrical Equipment – 5.7% | |
| Amphenol Corp., “A” | | 11,018 | $ 1,092,214 |
| Hubbell, Inc. | | 1,744 | 573,654 |
| Schneider Electric SE | | 3,705 | 743,505 |
| TE Connectivity Ltd. | | 3,680 | 517,040 |
| | | | | $2,926,413 |
| Electronics – 6.3% | |
| Analog Devices, Inc. | | 5,127 | $ 1,018,017 |
| NVIDIA Corp. | | 1,305 | 646,262 |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | 12,169 | 1,265,576 |
| Texas Instruments, Inc. | | 1,627 | 277,339 |
| | | | | $3,207,194 |
| Food & Beverages – 2.7% | |
| McCormick & Co., Inc. | | 11,627 | $ 795,519 |
| Nestle S.A. | | 4,487 | 520,216 |
| PepsiCo, Inc. | | 503 | 85,430 |
| | | | | $1,401,165 |
| General Merchandise – 1.8% | |
| B&M European Value Retail S.A. | | 82,408 | $ 588,442 |
| Dollarama, Inc. | | 4,792 | 345,336 |
| | | | | $933,778 |
| Insurance – 2.3% | |
| Aon PLC | | 2,543 | $ 740,064 |
| Marsh & McLennan Cos., Inc. | | 2,298 | 435,402 |
| | | | | $1,175,466 |
| Internet – 8.3% | |
| Alphabet, Inc., “A” (a) | | 11,235 | $ 1,569,417 |
| Gartner, Inc. (a) | | 1,616 | 728,994 |
| NAVER Corp. | | 5,107 | 883,873 |
| Tencent Holdings Ltd. | | 28,900 | 1,086,641 |
| | | | | $4,268,925 |
| Leisure & Toys – 0.6% | |
| Electronic Arts, Inc. | | 2,221 | $ 303,855 |
| Machinery & Tools – 3.0% | |
| Daikin Industries Ltd. | | 3,000 | $ 489,042 |
| Eaton Corp. PLC | | 3,273 | 788,204 |
| Veralto Corp. | | 3,407 | 280,260 |
| | | | | $1,557,506 |
| Medical & Health Technology & Services – 1.8% | |
| ICON PLC (a) | | 3,216 | $ 910,353 |
| Medical Equipment – 10.0% | |
| Abbott Laboratories | | 2,260 | $ 248,758 |
| Agilent Technologies, Inc. | | 8,067 | 1,121,555 |
| Becton, Dickinson and Co. | | 1,814 | 442,308 |
| Boston Scientific Corp. (a) | | 14,550 | 841,136 |
| Danaher Corp. | | 2,449 | 566,552 |
| STERIS PLC | | 4,606 | 1,012,629 |
MFS Global Growth Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Medical Equipment – continued | |
| Stryker Corp. | | 1,053 | $ 315,331 |
| Thermo Fisher Scientific, Inc. | | 1,037 | 550,429 |
| | | | | $5,098,698 |
| Other Banks & Diversified Financials – 8.9% | |
| Credicorp Ltd. | | 3,741 | $�� 560,888 |
| HDFC Bank Ltd. | | 46,050 | 945,889 |
| Julius Baer Group Ltd. | | 4,059 | 227,551 |
| Mastercard, Inc., “A” | | 918 | 391,536 |
| Moody's Corp. | | 1,730 | 675,669 |
| Visa, Inc., “A” | | 6,804 | 1,771,421 |
| | | | | $4,572,954 |
| Printing & Publishing – 1.0% | |
| Wolters Kluwer N.V. | | 3,524 | $ 500,684 |
| Railroad & Shipping – 2.4% | |
| Canadian Pacific Kansas City Ltd. | | 15,616 | $ 1,234,601 |
| Restaurants – 1.0% | |
| Starbucks Corp. | | 5,255 | $ 504,533 |
| Specialty Chemicals – 0.9% | |
| Sika AG | | 1,386 | $ 451,041 |
| Specialty Stores – 2.7% | |
| Ross Stores, Inc. | | 5,700 | $ 788,823 |
| TJX Cos., Inc. | | 6,268 | 588,001 |
| | | | | $1,376,824 |
| Telecommunications - Wireless – 2.7% | |
| American Tower Corp., REIT | | 3,824 | $ 825,525 |
| Cellnex Telecom S.A. | | 13,441 | 529,130 |
| | | | | $1,354,655 |
| Utilities - Electric Power – 1.4% | |
| Xcel Energy, Inc. | | 11,773 | $ 728,866 |
| Total Common Stocks (Identified Cost, $29,427,242) | | $51,014,964 |
| Investment Companies (h) – 0.4% |
| Money Market Funds – 0.4% | |
| MFS Institutional Money Market Portfolio, 5.42% (v) (Identified Cost, $197,373) | | | 197,376 | $ 197,415 |
| Other Assets, Less Liabilities – (0.1)% | | (43,146) |
| Net Assets – 100.0% | $51,169,233 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $197,415 and $51,014,964, respectively. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
MFS Global Growth Portfolio
Portfolio of Investments – continued
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| REIT | Real Estate Investment Trust |
See Notes to Financial Statements
MFS Global Growth Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/23Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $29,427,242) | $51,014,964 |
| Investments in affiliated issuers, at value (identified cost, $197,373) | 197,415 |
| Cash | 2,792 |
| Foreign currency, at value (identified cost, $8) | 8 |
| Receivables for | |
| Fund shares sold | 84 |
| Dividends | 96,545 |
| Receivable from investment adviser | 4,262 |
| Other assets | 487 |
| Total assets | $51,316,557 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $58,117 |
| Payable to affiliates | |
| Administrative services fee | 193 |
| Shareholder servicing costs | 2 |
| Distribution and/or service fees | 232 |
| Payable for independent Trustees' compensation | 92 |
| Deferred foreign capital gains tax expense payable | 35,075 |
| Payable for audit and tax fees | 39,601 |
| Accrued expenses and other liabilities | 14,012 |
| Total liabilities | $147,324 |
| Net assets | $51,169,233 |
| Net assets consist of | |
| Paid-in capital | $25,810,187 |
| Total distributable earnings (loss) | 25,359,046 |
| Net assets | $51,169,233 |
| Shares of beneficial interest outstanding | 1,895,169 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $42,714,464 | 1,579,896 | $27.04 |
| Service Class | 8,454,769 | 315,273 | 26.82 |
See Notes to Financial Statements
MFS Global Growth Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/23 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $665,221 |
| Dividends from affiliated issuers | 17,678 |
| Other | 345 |
| Income on securities loaned | 9 |
| Foreign taxes withheld | (33,381) |
| Total investment income | $649,872 |
| Expenses | |
| Management fee | $442,781 |
| Distribution and/or service fees | 18,122 |
| Shareholder servicing costs | 742 |
| Administrative services fee | 17,536 |
| Independent Trustees' compensation | 2,971 |
| Custodian fee | 19,839 |
| Shareholder communications | 204 |
| Audit and tax fees | 76,463 |
| Legal fees | 306 |
| Miscellaneous | 22,169 |
| Total expenses | $601,133 |
| Reduction of expenses by investment adviser | (115,158) |
| Net expenses | $485,975 |
| Net investment income (loss) | $163,897 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (includes $2,989 foreign capital gains tax) | $3,819,622 |
| Affiliated issuers | (134) |
| Foreign currency | (2,435) |
| Net realized gain (loss) | $3,817,053 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (includes $1,095 increase in deferred foreign capital gains tax) | $5,338,903 |
| Affiliated issuers | (68) |
| Translation of assets and liabilities in foreign currencies | 3,385 |
| Net unrealized gain (loss) | $5,342,220 |
| Net realized and unrealized gain (loss) | $9,159,273 |
| Change in net assets from operations | $9,323,170 |
See Notes to Financial Statements
MFS Global Growth Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/23 | 12/31/22 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $163,897 | $64,941 |
| Net realized gain (loss) | 3,817,053 | 2,324,677 |
| Net unrealized gain (loss) | 5,342,220 | (14,199,645) |
| Change in net assets from operations | $9,323,170 | $(11,810,027) |
| Total distributions to shareholders | $(2,432,005) | $(5,877,121) |
| Change in net assets from fund share transactions | $(2,566,201) | $1,921,038 |
| Total change in net assets | $4,324,964 | $(15,766,110) |
| Net assets | | |
| At beginning of period | 46,844,269 | 62,610,379 |
| At end of period | $51,169,233 | $46,844,269 |
See Notes to Financial Statements
MFS Global Growth Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $23.52 | $32.85 | $31.23 | $28.60 | $23.72 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.10 | $0.04 | $0.06 | $0.03 | $0.14 |
| Net realized and unrealized gain (loss) | 4.74 | (6.13) | 5.57 | 5.57 | 8.00 |
| Total from investment operations | $4.84 | $(6.09) | $5.63 | $5.60 | $8.14 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.04) | $(0.05) | $(0.03) | $(0.14) | $(0.16) |
| From net realized gain | (1.28) | (3.19) | (3.98) | (2.83) | (3.10) |
| Total distributions declared to shareholders | $(1.32) | $(3.24) | $(4.01) | $(2.97) | $(3.26) |
| Net asset value, end of period (x) | $27.04 | $23.52 | $32.85 | $31.23 | $28.60 |
| Total return (%) (k)(r)(s)(x) | 20.99 | (19.11) | 18.52 | 20.76 | 36.01 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.18 | 1.18 | 1.15 | 1.21 | 1.21 |
| Expenses after expense reductions | 0.95 | 1.00 | 1.00 | 1.00 | 1.00 |
| Net investment income (loss) | 0.37 | 0.16 | 0.17 | 0.10 | 0.53 |
| Portfolio turnover | 24 | 18 | 19 | 34 | 22 |
| Net assets at end of period (000 omitted) | $42,714 | $40,380 | $55,501 | $53,591 | $50,911 |
| Service Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $23.36 | $32.67 | $31.13 | $28.52 | $23.65 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.03 | $(0.02) | $(0.03) | $(0.04) | $0.07 |
| Net realized and unrealized gain (loss) | 4.71 | (6.10) | 5.55 | 5.56 | 7.98 |
| Total from investment operations | $4.74 | $(6.12) | $5.52 | $5.52 | $8.05 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $— | $— | $— | $(0.08) | $(0.08) |
| From net realized gain | (1.28) | (3.19) | (3.98) | (2.83) | (3.10) |
| Total distributions declared to shareholders | $(1.28) | $(3.19) | $(3.98) | $(2.91) | $(3.18) |
| Net asset value, end of period (x) | $26.82 | $23.36 | $32.67 | $31.13 | $28.52 |
| Total return (%) (k)(r)(s)(x) | 20.69 | (19.32) | 18.21 | 20.49 | 35.66 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.43 | 1.43 | 1.39 | 1.46 | 1.46 |
| Expenses after expense reductions | 1.20 | 1.25 | 1.25 | 1.25 | 1.25 |
| Net investment income (loss) | 0.11 | (0.09) | (0.10) | (0.16) | 0.26 |
| Portfolio turnover | 24 | 18 | 19 | 34 | 22 |
| Net assets at end of period (000 omitted) | $8,455 | $6,464 | $7,110 | $2,950 | $2,109 |
See Notes to Financial Statements
MFS Global Growth Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS Global Growth Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Global Growth Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions. Investments in emerging markets can involve additional and greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, accounting, and auditing systems, greater government involvement in the economy, greater risk of new or inconsistent government treatment of or restrictions on issuers and instruments, and greater political, social, and economic instability than developed markets.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading
MFS Global Growth Portfolio
Notes to Financial Statements - continued
does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2023 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| United States | $35,607,391 | $— | $— | $35,607,391 |
| Canada | 3,042,163 | — | — | 3,042,163 |
| France | 1,952,079 | — | — | 1,952,079 |
| China | 1,719,392 | — | — | 1,719,392 |
| United Kingdom | 1,649,345 | — | — | 1,649,345 |
| Taiwan | 1,265,576 | — | — | 1,265,576 |
| South Korea | — | 1,207,131 | — | 1,207,131 |
| Switzerland | 1,198,808 | — | — | 1,198,808 |
| India | 945,889 | — | — | 945,889 |
| Other Countries | 2,427,190 | — | — | 2,427,190 |
| Mutual Funds | 197,415 | — | — | 197,415 |
| Total | $50,005,248 | $1,207,131 | $— | $51,212,379 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. A portion of the income generated upon investment of the collateral
MFS Global Growth Portfolio
Notes to Financial Statements - continued
is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income. At December 31, 2023, there were no securities on loan or collateral outstanding.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Investment transactions are recorded on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/23 | Year ended
12/31/22 |
| Ordinary income (including any short-term capital gains) | $59,503 | $703,075 |
| Long-term capital gains | 2,372,502 | 5,174,046 |
| Total distributions | $2,432,005 | $5,877,121 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
MFS Global Growth Portfolio
Notes to Financial Statements - continued
| As of 12/31/23 | |
| Cost of investments | $29,829,666 |
| Gross appreciation | 22,313,613 |
| Gross depreciation | (930,900) |
| Net unrealized appreciation (depreciation) | $21,382,713 |
| Undistributed ordinary income | 386,857 |
| Undistributed long-term capital gain | 3,586,627 |
| Other temporary differences | 2,849 |
| Total distributable earnings (loss) | $25,359,046 |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/23 | | Year
ended
12/31/22 |
| Initial Class | $2,085,719 | | $5,124,683 |
| Service Class | 346,286 | | 752,438 |
| Total | $2,432,005 | | $5,877,121 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.90% |
| In excess of $1 billion and up to $2 billion | 0.75% |
| In excess of $2 billion | 0.65% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this management fee reduction amounted to $6,289, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.89% of the fund's average daily net assets.
For the period from January 1, 2023 through July 31, 2023, the investment adviser had agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses did not exceed 1.00% of average daily net assets for the Initial Class shares and 1.25% of average daily net assets for the Service Class shares. This written agreement terminated on July 31, 2023. For the period from January 1, 2023 through July 31, 2023, this reduction amounted to $52,399, which is included in the reduction of total expenses in the Statement of Operations. Effective August 1, 2023, the investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.88% of average daily net assets for the Initial Class shares and 1.13% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2025. For the period from August 1, 2023 through December 31, 2023, this reduction amounted to $56,470, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
MFS Global Growth Portfolio
Notes to Financial Statements - continued
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares as well as shareholder servicing and account maintenance activities. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. The distribution and/or service fees are computed daily and paid monthly.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2023, the fee was $540, which equated to 0.0011% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2023, these costs amounted to $202.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is computed daily and paid monthly. The administrative services fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.0356% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
(4) Portfolio Securities
For the year ended December 31, 2023, purchases and sales of investments, other than short-term obligations, aggregated $11,712,952 and $16,387,182, respectively.
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 26,676 | $691,736 | | 31,265 | $836,344 |
| Service Class | 65,024 | 1,661,806 | | 47,729 | 1,278,209 |
| | 91,700 | $2,353,542 | | 78,994 | $2,114,553 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 83,163 | $2,085,719 | | 204,987 | $5,124,683 |
| Service Class | 13,907 | 346,286 | | 30,267 | 752,438 |
| | 97,070 | $2,432,005 | | 235,254 | $5,877,121 |
| Shares reacquired | | | | | |
| Initial Class | (246,948) | $(6,323,585) | | (209,020) | $(5,543,223) |
| Service Class | (40,383) | (1,028,163) | | (18,910) | (527,413) |
| | (287,331) | $(7,351,748) | | (227,930) | $(6,070,636) |
MFS Global Growth Portfolio
Notes to Financial Statements - continued
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Net change | | | | | |
| Initial Class | (137,109) | $(3,546,130) | | 27,232 | $417,804 |
| Service Class | 38,548 | 979,929 | | 59,086 | 1,503,234 |
| | (98,561) | $(2,566,201) | | 86,318 | $1,921,038 |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 14, 2024 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2023, the fund’s commitment fee and interest expense were $242 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $374,408 | $7,905,791 | $8,082,582 | $(134) | $(68) | $197,415 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $17,678 | $— |
MFS Global Growth Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Global Growth Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Global Growth Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 2024
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Global Growth Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2024, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 57) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 69) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 72) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 69) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 68) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 68) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 62) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 67) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 67) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 66) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 55) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
MFS Global Growth Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
John W. Clark, Jr. (k)
(age 56) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 55) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 56) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 47) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022) |
Amanda S. Mooradian (k)
(age 44) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 53) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 53) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
James O. Yost (k)
(age 63) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Caroselli, Jones and Otis are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
MFS Global Growth Portfolio
Trustees and Officers - continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Congress Street, Suite 1
Boston, MA 02114-2016 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Jeffrey Constantino
Joseph Skorski | |
MFS Global Growth Portfolio
Board Review of Investment Advisory Agreement
MFS Global Growth Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2023 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2022 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2022, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 1st quintile for each of the one- and three-year periods ended December 31, 2022 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS Global Growth Portfolio
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each higher than the Broadridge expense group median. The Trustees also noted that MFS has agreed to further reduce the expense limitation for the Fund effective August 1, 2023, which may not be changed without the Trustees’ approval.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2023.
MFS Global Growth Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $2,610,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 100.00% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2023
MFS® Global Research Portfolio
MFS® Variable Insurance Trust II
MFS® Global Research Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Global Research Portfolio
Portfolio structure
Top ten holdings
| Microsoft Corp. | 5.8% |
| Alphabet, Inc., “A” | 3.7% |
| Amazon.com, Inc. | 2.6% |
| Visa, Inc., “A” | 2.1% |
| Salesforce, Inc. | 1.7% |
| Apple, Inc. | 1.6% |
| Meta Platforms, Inc., “A” | 1.4% |
| Taiwan Semiconductor Manufacturing Co. Ltd. | 1.4% |
| Roche Holding AG | 1.4% |
| London Stock Exchange Group PLC | 1.4% |
Global equity sectors (k)
| Technology | 29.0% |
| Capital Goods | 17.1% |
| Financial Services | 16.4% |
| Health Care | 11.4% |
| Consumer Cyclicals | 10.7% |
| Energy | 7.2% |
| Consumer Staples | 5.0% |
| Telecommunications/Cable Television | 2.3% |
Issuer country weightings (x)
| United States | 65.9% |
| France | 6.3% |
| Switzerland | 4.4% |
| United Kingdom | 4.4% |
| Japan | 3.8% |
| Hong Kong | 1.9% |
| Netherlands | 1.8% |
| Canada | 1.7% |
| Spain | 1.5% |
| Other Countries | 8.3% |
Currency exposure weightings (y)
| United States Dollar | 67.4% |
| Euro | 11.5% |
| Swiss Franc | 4.4% |
| British Pound Sterling | 4.4% |
| Japanese Yen | 3.8% |
| Hong Kong Dollar | 2.5% |
| Taiwan Dollar | 1.4% |
| Australian Dollar | 1.4% |
| Canadian Dollar | 1.1% |
| Other Currencies | 2.1% |
| (k) | The sectors set forth above and the associated portfolio composition are based on MFS’ own custom sector classification methodology. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents and Other. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of December 31, 2023.
The portfolio is actively managed and current holdings may be different.
MFS Global Research Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2023, Initial Class shares of the MFS Global Research Portfolio (fund) provided a total return of 19.28%, while Service Class shares of the fund provided a total return of 18.97%. These compare with a return of 22.20% over the same period for the fund’s benchmark, the MSCI All Country World Index (net div).
Market Environment
During the reporting period, central banks around the world had to combat the strongest inflationary pressures in four decades, fueled by the global fiscal response to the pandemic, disrupted supply chains and the dislocations to energy markets stemming from the war in Ukraine. Interest rates rose substantially, but the effects of a tighter monetary policy may not have been fully experienced yet, given that monetary policy works with long and variable lags. Strains resulting from the abrupt tightening of monetary policy began to affect some parts of the economy, most acutely among small and regional US banks, which suffered from deposit flight as depositors sought higher yields on their savings. Additionally, activity in the US housing sector has slowed as a result of higher mortgage rates. China’s abandonment of its Zero-COVID policy ushered in a brief uptick in economic activity in the world’s second-largest economy in early 2023, although its momentum soon stalled as the focus turned to the country’s highly indebted property development sector. In developed markets, consumer demand for services remained stronger than the demand for goods.
Early on, policymakers found themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, central banks focused on controlling price pressures while also confronting increasing financial stability concerns. Central banks had to juggle achieving their inflation mandates while using macroprudential tools (financial policies aimed at safeguarding the stability of the financial system) to keep banking systems liquid, a potentially difficult balancing act, and one that suggested that we may be nearing a peak in policy rates. As inflationary pressures eased toward the end of the period, financial conditions loosened in anticipation of easier monetary policy, boosting the market’s appetite for risk. Rapid advancements in artificial intelligence were a focus for investors.
Normalizing supply chains, low levels of unemployment across developed markets and signs that inflation levels have peaked were supportive factors for the macroeconomic backdrop.
Detractors from Performance
Relative to the MSCI All Country World Index, stock selection within both the financial services and capital goods sectors detracted from the fund’s performance. Within the financial services sector, the fund’s overweight positions in insurance company AIA Group (Hong Kong), financial services provider Charles Schwab, and international banking and financial services provider NatWest Group (United Kingdom) held back relative results. Although AIA Group posted solid financial results, the share price declined following the suspension of its share buyback program. Within the capital goods sector, not owning shares of electric vehicle manufacturer Tesla hindered relative returns. Despite operating margin pressures due to aggressive vehicle price cuts, the price of Tesla shares rose as the company delivered a record number of vehicles. Announcements by competitors to utilize Tesla’s charging network also helped the stock price.
Elsewhere, underweight positions in computer graphics processor maker NVIDIA, social networking service provider Meta Platforms, and computer and personal electronics maker Apple weakened relative performance. The stock price of NVIDIA climbed as the company reported earnings per share results well above expectations, primarily driven by stronger-than-expected revenue growth within its data center, generative AI, and networking segments. Revenue and earnings per share guidance were significantly above expectations, led by continued robust demand related to generative AI. The fund’s overweight holdings of global health services provider Cigna Group and pharmaceutical and diagnostic company Roche Holding (Switzerland) also hurt relative returns. Additionally, not owning shares of broadband communications and networking services company Broadcom further weighed on the fund’s relative performance.
Contributors to Performance
Stock selection within the health care sector contributed to relative performance, however, there were no individual stocks within this sector, either in the fund or the benchmark, that were among the fund’s top relative contributors during the period.
Favorable stock selection within the energy sector also strengthened relative returns. Here, the fund’s overweight position in oil and gas exploration and production company Petroleo Brasileiro (Brazil), and avoiding shares of weak-performing integrated oil and gas company ExxonMobil, helped relative performance. Despite strong operational performance and an increased dividend returned to shareholders, the share price of ExxonMobil fell as the company reported lower-than-expected earnings-per-share amid declining oil prices and guidance of tighter refining margins.
MFS Global Research Portfolio
Management Review - continued
Individual stocks in other sectors that contributed to the fund's relative returns included overweight positions in customer information software manager Salesforce, software giant Microsoft, technology company Alphabet, enterprise software solutions Constellation Software (Canada), integrated circuits and electronic devices developer Cadence Design Systems, internet retailer Amazon.com, electronics company Hitachi (Japan), and network security solutions services provider Palo Alto Networks. The share price of Salesforce rose as the company reported better-than-expected revenue from subscriptions and strong growth in its data automation product, MuleSoft.
During the reporting period, the fund's relative currency exposure, resulting primarily from differences between the fund's and the benchmark's exposures to holdings of securities denominated in foreign currencies, contributed to relative performance. All of MFS' investment decisions are driven by the fundamentals of each individual opportunity and as such, it is common for our funds to have different currency exposure than the benchmark.
Respectfully,
Portfolio Managers
Akira Fuse and James Keating
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Global Research Portfolio
Performance Summary Through 12/31/23
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/23
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 11/07/1994 | 19.28% | 12.34% | 8.17% |
| Service Class | 8/24/2001 | 18.97% | 12.05% | 7.89% |
Comparative benchmark(s)
| MSCI All Country World Index (net div) (f) | 22.20% | 11.72% | 7.93% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
MSCI All Country World Index(e) (net div) – a market capitalization-weighted index that is designed to measure equity market performance in the global developed and emerging markets.
It is not possible to invest directly in an index.
| (e) | Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
MFS Global Research Portfolio
Performance Summary – continued
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Global Research Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2023 through December 31, 2023
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2023 through December 31, 2023.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/23 | Ending
Account Value
12/31/23 | Expenses
Paid During
Period (p)
7/01/23-12/31/23 |
| Initial Class | Actual | 0.85% | $1,000.00 | $1,061.54 | $4.42 |
| Hypothetical (h) | 0.85% | $1,000.00 | $1,020.92 | $4.33 |
| Service Class | Actual | 1.10% | $1,000.00 | $1,060.12 | $5.71 |
| Hypothetical (h) | 1.10% | $1,000.00 | $1,019.66 | $5.60 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS Global Research Portfolio
Portfolio of Investments − 12/31/23
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 99.1% |
| Aerospace & Defense – 3.2% | |
| Boeing Co. (a) | | 2,426 | $ 632,361 |
| General Dynamics Corp. | | 1,920 | 498,566 |
| Honeywell International, Inc. | | 3,985 | 835,694 |
| Howmet Aerospace, Inc. | | 8,639 | 467,543 |
| | | | | $2,434,164 |
| Alcoholic Beverages – 1.5% | |
| China Resources Beer Holdings Co. Ltd. | | 42,000 | $ 183,954 |
| Constellation Brands, Inc., “A” | | 1,268 | 306,539 |
| Diageo PLC | | 12,737 | 463,678 |
| Kweichow Moutai Co. Ltd., “A” | | 900 | 219,029 |
| | | | | $1,173,200 |
| Apparel Manufacturers – 2.6% | |
| Compagnie Financiere Richemont S.A. | | 4,264 | $ 586,835 |
| LVMH Moet Hennessy Louis Vuitton SE | | 1,113 | 901,372 |
| NIKE, Inc., “B” | | 4,215 | 457,623 |
| | | | | $1,945,830 |
| Broadcasting – 0.6% | |
| Walt Disney Co. | | 5,179 | $ 467,612 |
| Brokerage & Asset Managers – 4.2% | |
| Charles Schwab Corp. | | 9,674 | $ 665,571 |
| CME Group, Inc. | | 3,043 | 640,856 |
| Euronext N.V. | | 9,134 | 793,066 |
| London Stock Exchange Group PLC | | 9,054 | 1,070,283 |
| | | | | $3,169,776 |
| Business Services – 1.7% | |
| Accenture PLC, “A” | | 2,630 | $ 922,893 |
| Tyler Technologies, Inc. (a) | | 829 | 346,622 |
| | | | | $1,269,515 |
| Cable TV – 0.3% | |
| Cable One, Inc. | | 459 | $ 255,475 |
| Computer Software – 9.0% | |
| Cadence Design Systems, Inc. (a) | | 3,071 | $ 836,448 |
| Microsoft Corp. (s) | | 11,678 | 4,391,395 |
| Palo Alto Networks, Inc. (a) | | 1,251 | 368,895 |
| Salesforce, Inc. (a) | | 4,796 | 1,262,020 |
| | | | | $6,858,758 |
| Computer Software - Systems – 6.5% | |
| Apple, Inc. (s) | | 6,192 | $ 1,192,146 |
| Cap Gemini S.A. | | 3,623 | 754,927 |
| Constellation Software, Inc. | | 330 | 818,187 |
| Hitachi Ltd. | | 14,200 | 1,024,213 |
| HubSpot, Inc. (a) | | 645 | 374,448 |
| ServiceNow, Inc. (a) | | 1,165 | 823,061 |
| | | | | $4,986,982 |
MFS Global Research Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Construction – 1.9% | |
| Sherwin-Williams Co. | | 1,793 | $ 559,236 |
| Techtronic Industries Co. Ltd. | | 25,500 | 303,871 |
| Vulcan Materials Co. | | 2,508 | 569,341 |
| | | | | $1,432,448 |
| Consumer Products – 1.0% | |
| Colgate-Palmolive Co. | | 5,000 | $ 398,550 |
| Kao Corp. | | 4,500 | 185,107 |
| Kenvue, Inc. | | 9,612 | 206,946 |
| | | | | $790,603 |
| Electrical Equipment – 2.2% | |
| Johnson Controls International PLC | | 6,787 | $ 391,203 |
| Schneider Electric SE | | 4,466 | 896,219 |
| TE Connectivity Ltd. | | 2,559 | 359,539 |
| | | | | $1,646,961 |
| Electronics – 5.4% | |
| Applied Materials, Inc. | | 2,711 | $ 439,372 |
| ASML Holding N.V. | | 881 | 663,008 |
| Marvell Technology, Inc. | | 9,324 | 562,330 |
| NVIDIA Corp. | | 1,447 | 716,583 |
| NXP Semiconductors N.V. | | 2,616 | 600,843 |
| Taiwan Semiconductor Manufacturing Co. Ltd. | | 57,000 | 1,101,351 |
| | | | | $4,083,487 |
| Energy - Independent – 1.8% | |
| ConocoPhillips | | 6,215 | $ 721,375 |
| Valero Energy Corp. | | 3,001 | 390,130 |
| Woodside Energy Group Ltd. | | 11,794 | 249,630 |
| | | | | $1,361,135 |
| Energy - Integrated – 2.3% | |
| Galp Energia SGPS S.A., “B” | | 36,927 | $ 543,813 |
| Petroleo Brasileiro S.A., ADR | | 35,186 | 537,642 |
| TotalEnergies SE | | 10,055 | 683,773 |
| | | | | $1,765,228 |
| Food & Beverages – 2.1% | |
| Mondelez International, Inc. | | 6,311 | $ 457,105 |
| Nestle S.A. | | 5,569 | 645,661 |
| PepsiCo, Inc. | | 2,770 | 470,457 |
| | | | | $1,573,223 |
| Food & Drug Stores – 0.3% | |
| Seven & I Holdings Co. Ltd. | | 6,500 | $ 257,925 |
| Gaming & Lodging – 1.0% | |
| Aristocrat Leisure Ltd. | | 10,483 | $ 291,604 |
| Sands China Ltd. (a) | | 49,200 | 143,974 |
| Whitbread PLC | | 7,043 | 328,212 |
| | | | | $763,790 |
| Health Maintenance Organizations – 1.0% | |
| Cigna Group | | 2,573 | $ 770,485 |
MFS Global Research Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Insurance – 2.8% | |
| AIA Group Ltd. | | 69,600 | $ 606,555 |
| Aon PLC | | 2,561 | 745,302 |
| Chubb Ltd. | | 3,556 | 803,656 |
| | | | | $2,155,513 |
| Internet – 6.4% | |
| Alphabet, Inc., “A” (a)(s) | | 20,180 | $ 2,818,944 |
| Gartner, Inc. (a) | | 2,111 | 952,293 |
| Meta Platforms, Inc., “A” (a) | | 3,115 | 1,102,586 |
| | | | | $4,873,823 |
| Leisure & Toys – 0.4% | |
| Electronic Arts, Inc. | | 2,257 | $ 308,780 |
| Machinery & Tools – 4.1% | |
| Eaton Corp. PLC | | 2,351 | $ 566,168 |
| GEA Group AG | | 6,670 | 277,525 |
| Ingersoll Rand, Inc. | | 7,259 | 561,411 |
| Regal Rexnord Corp. | | 3,253 | 481,509 |
| SMC Corp. | | 1,100 | 591,035 |
| Wabtec Corp. | | 5,289 | 671,174 |
| | | | | $3,148,822 |
| Major Banks – 3.7% | |
| BNP Paribas | | 10,689 | $ 738,569 |
| Goldman Sachs Group, Inc. | | 1,705 | 657,738 |
| Mitsubishi UFJ Financial Group, Inc. | | 41,000 | 352,280 |
| NatWest Group PLC | | 255,864 | 715,545 |
| PNC Financial Services Group, Inc. | | 2,453 | 379,847 |
| | | | | $2,843,979 |
| Medical & Health Technology & Services – 0.7% | |
| ICON PLC (a) | | 1,789 | $ 506,412 |
| Medical Equipment – 4.3% | |
| Agilent Technologies, Inc. | | 5,555 | $ 772,312 |
| Becton, Dickinson and Co. | | 2,073 | 505,459 |
| Boston Scientific Corp. (a)(s) | | 11,423 | 660,364 |
| Medtronic PLC | | 7,614 | 627,241 |
| QIAGEN N.V. (a) | | 6,935 | 301,187 |
| STERIS PLC | | 1,735 | 381,440 |
| | | | | $3,248,003 |
| Metals & Mining – 0.6% | |
| Glencore PLC | | 73,125 | $ 440,039 |
| Natural Gas - Distribution – 0.4% | |
| China Resources Gas Group Ltd. | | 93,700 | $ 307,193 |
| Oil Services – 0.4% | |
| Schlumberger Ltd. | | 5,858 | $ 304,850 |
MFS Global Research Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Other Banks & Diversified Financials – 5.2% | |
| HDFC Bank Ltd. | | 23,418 | $ 481,017 |
| Julius Baer Group Ltd. | | 12,030 | 674,412 |
| Macquarie Group Ltd. | | 4,430 | 554,347 |
| Moody's Corp. | | 1,609 | 628,411 |
| Visa, Inc., “A” | | 6,120 | 1,593,342 |
| | | | | $3,931,529 |
| Pharmaceuticals – 5.4% | |
| AbbVie, Inc. | | 4,322 | $ 669,780 |
| Johnson & Johnson | | 4,670 | 731,976 |
| Pfizer, Inc. | | 16,553 | 476,561 |
| Roche Holding AG | | 3,786 | 1,100,621 |
| Santen Pharmaceutical Co. Ltd. | | 18,500 | 184,344 |
| Vertex Pharmaceuticals, Inc. (a) | | 1,290 | 524,888 |
| Zoetis, Inc. | | 2,354 | 464,609 |
| | | | | $4,152,779 |
| Printing & Publishing – 0.6% | |
| Wolters Kluwer N.V. | | 3,277 | $ 465,591 |
| Railroad & Shipping – 0.6% | |
| Canadian Pacific Kansas City Ltd. | | 5,813 | $ 459,576 |
| Real Estate – 0.5% | |
| LEG Immobilien SE (a) | | 4,791 | $ 419,525 |
| Restaurants – 1.0% | |
| Starbucks Corp. | | 4,099 | $ 393,545 |
| Yum China Holdings, Inc. | | 8,197 | 347,799 |
| | | | | $741,344 |
| Specialty Chemicals – 4.0% | |
| Air Products & Chemicals, Inc. | | 1,836 | $ 502,697 |
| Akzo Nobel N.V. | | 3,022 | 249,610 |
| Corteva, Inc. | | 4,082 | 195,609 |
| Croda International PLC | | 4,763 | 306,594 |
| DuPont de Nemours, Inc. | | 6,914 | 531,894 |
| Linde PLC | | 2,233 | 917,115 |
| Sika AG | | 1,133 | 368,708 |
| | | | | $3,072,227 |
| Specialty Stores – 4.2% | |
| Amazon.com, Inc. (a)(s) | | 13,283 | $ 2,018,219 |
| Home Depot, Inc. | | 2,083 | 721,864 |
| Target Corp. | | 3,099 | 441,359 |
| | | | | $3,181,442 |
| Telecommunications - Wireless – 1.7% | |
| Advanced Info Service Public Co. Ltd. | | 54,600 | $ 347,124 |
| Cellnex Telecom S.A. | | 10,963 | 431,579 |
| KDDI Corp. | | 8,800 | 279,977 |
| SBA Communications Corp., REIT | | 804 | 203,967 |
| | | | | $1,262,647 |
MFS Global Research Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Telephone Services – 0.3% | |
| Hellenic Telecommunications Organization S.A. | | 15,912 | $ 226,602 |
| Tobacco – 0.4% | |
| Philip Morris International, Inc. | | 3,198 | $ 300,868 |
| Trucking – 0.5% | |
| J.B. Hunt Transport Services, Inc. | | 2,004 | $ 400,279 |
| Utilities - Electric Power – 2.3% | |
| CLP Holdings Ltd. | | 46,500 | $ 383,803 |
| Iberdrola S.A. | | 55,165 | 722,876 |
| PG&E Corp. | | 36,713 | 661,935 |
| | | | | $1,768,614 |
| Total Common Stocks (Identified Cost, $49,590,575) | | $75,527,034 |
| | Strike
Price | First
Exercise | | |
| Warrants – 0.0% | | | | |
| Computer Software - Systems – 0.0% |
Constellation Software, Inc. (CAD 100 principal amount of Series 2 Debentures for 1 warrant, Expiration 3/31/40) (a)
(Identified Cost, $0) | CAD 11.5 | N/A | 352 | $ 0 |
| | | | | |
| Investment Companies (h) – 0.1% |
| Money Market Funds – 0.1% | |
| MFS Institutional Money Market Portfolio, 5.42% (v) (Identified Cost, $84,780) | | | 84,772 | $ 84,789 |
| Other Assets, Less Liabilities – 0.8% | | 607,396 |
| Net Assets – 100.0% | $76,219,219 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $84,789 and $75,527,034, respectively. | | | |
| (s) | Security or a portion of the security was pledged to cover collateral requirements for certain derivative transactions. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| REIT | Real Estate Investment Trust |
| Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below: |
| CAD | Canadian Dollar |
At December 31, 2023, the fund had liquid securities with an aggregate value of $624,403 to cover any collateral or margin obligations for certain derivative contracts.
See Notes to Financial Statements
MFS Global Research Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/23Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $49,590,575) | $75,527,034 |
| Investments in affiliated issuers, at value (identified cost, $84,780) | 84,789 |
| Foreign currency, at value (identified cost, $3) | 3 |
| Receivables for | |
| Investments sold | 608,018 |
| Dividends | 177,440 |
| Other assets | 41,782 |
| Total assets | $76,439,066 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $124,456 |
| Payable to affiliates | |
| Investment adviser | 17,445 |
| Administrative services fee | 227 |
| Shareholder servicing costs | 2 |
| Distribution and/or service fees | 165 |
| Payable for independent Trustees' compensation | 96 |
| Deferred foreign capital gains tax expense payable | 23,815 |
| Payable for audit and tax fees | 32,360 |
| Accrued expenses and other liabilities | 21,281 |
| Total liabilities | $219,847 |
| Net assets | $76,219,219 |
| Net assets consist of | |
| Paid-in capital | $45,759,895 |
| Total distributable earnings (loss) | 30,459,324 |
| Net assets | $76,219,219 |
| Shares of beneficial interest outstanding | 2,398,982 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $70,207,053 | 2,208,787 | $31.79 |
| Service Class | 6,012,166 | 190,195 | 31.61 |
See Notes to Financial Statements
MFS Global Research Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/23 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $1,484,160 |
| Dividends from affiliated issuers | 24,355 |
| Income on securities loaned | 1,876 |
| Interest | 262 |
| Other | 118 |
| Foreign taxes withheld | (70,921) |
| Total investment income | $1,439,850 |
| Expenses | |
| Management fee | $564,952 |
| Distribution and/or service fees | 15,316 |
| Shareholder servicing costs | 629 |
| Administrative services fee | 21,152 |
| Independent Trustees' compensation | 3,361 |
| Custodian fee | 19,376 |
| Audit and tax fees | 69,282 |
| Legal fees | 426 |
| Miscellaneous | 10,747 |
| Total expenses | $705,241 |
| Reduction of expenses by investment adviser | (48,876) |
| Net expenses | $656,365 |
| Net investment income (loss) | $783,485 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (includes $3,783 foreign capital gains tax) | $3,882,343 |
| Affiliated issuers | 39 |
| Foreign currency | 2,647 |
| Net realized gain (loss) | $3,885,029 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (includes $4,460 increase in deferred foreign capital gains tax) | $8,555,945 |
| Affiliated issuers | (63) |
| Translation of assets and liabilities in foreign currencies | 6,453 |
| Net unrealized gain (loss) | $8,562,335 |
| Net realized and unrealized gain (loss) | $12,447,364 |
| Change in net assets from operations | $13,230,849 |
See Notes to Financial Statements
MFS Global Research Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/23 | 12/31/22 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $783,485 | $717,006 |
| Net realized gain (loss) | 3,885,029 | 3,767,468 |
| Net unrealized gain (loss) | 8,562,335 | (21,977,382) |
| Change in net assets from operations | $13,230,849 | $(17,492,908) |
| Total distributions to shareholders | $(4,560,005) | $(7,517,106) |
| Change in net assets from fund share transactions | $(6,648,150) | $(1,463,920) |
| Total change in net assets | $2,022,694 | $(26,473,934) |
| Net assets | | |
| At beginning of period | 74,196,525 | 100,670,459 |
| At end of period | $76,219,219 | $74,196,525 |
See Notes to Financial Statements
MFS Global Research Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $28.39 | $38.03 | $34.70 | $32.19 | $27.00 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.32 | $0.28 | $0.18 | $0.22 | $0.40 |
| Net realized and unrealized gain (loss) | 4.99 | (6.86) | 6.17 | 4.87 | 7.88 |
| Total from investment operations | $5.31 | $(6.58) | $6.35 | $5.09 | $8.28 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.29) | $(0.19) | $(0.22) | $(0.42) | $(0.34) |
| From net realized gain | (1.62) | (2.87) | (2.80) | (2.16) | (2.75) |
| Total distributions declared to shareholders | $(1.91) | $(3.06) | $(3.02) | $(2.58) | $(3.09) |
| Net asset value, end of period (x) | $31.79 | $28.39 | $38.03 | $34.70 | $32.19 |
| Total return (%) (k)(r)(s)(x) | 19.28 | (17.67) | 18.51 | 16.49 | 31.96 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.92 | 0.96 | 0.91 | 0.95 | 0.94 |
| Expenses after expense reductions | 0.85 | 0.85 | 0.85 | 0.85 | 0.85 |
| Net investment income (loss) | 1.06 | 0.90 | 0.49 | 0.69 | 1.29 |
| Portfolio turnover | 22 | 19 | 15 | 32 | 27 |
| Net assets at end of period (000 omitted) | $70,207 | $67,891 | $92,642 | $88,676 | $87,138 |
| Service Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $28.23 | $37.82 | $34.54 | $32.06 | $26.89 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.25 | $0.20 | $0.09 | $0.13 | $0.32 |
| Net realized and unrealized gain (loss) | 4.96 | (6.82) | 6.13 | 4.87 | 7.85 |
| Total from investment operations | $5.21 | $(6.62) | $6.22 | $5.00 | $8.17 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.21) | $(0.10) | $(0.14) | $(0.36) | $(0.25) |
| From net realized gain | (1.62) | (2.87) | (2.80) | (2.16) | (2.75) |
| Total distributions declared to shareholders | $(1.83) | $(2.97) | $(2.94) | $(2.52) | $(3.00) |
| Net asset value, end of period (x) | $31.61 | $28.23 | $37.82 | $34.54 | $32.06 |
| Total return (%) (k)(r)(s)(x) | 18.97 | (17.88) | 18.20 | 16.24 | 31.62 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.17 | 1.21 | 1.16 | 1.21 | 1.19 |
| Expenses after expense reductions | 1.10 | 1.10 | 1.10 | 1.10 | 1.10 |
| Net investment income (loss) | 0.83 | 0.65 | 0.24 | 0.40 | 1.06 |
| Portfolio turnover | 22 | 19 | 15 | 32 | 27 |
| Net assets at end of period (000 omitted) | $6,012 | $6,306 | $8,028 | $7,705 | $6,034 |
See Notes to Financial Statements
MFS Global Research Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS Global Research Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Global Research Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party
MFS Global Research Portfolio
Notes to Financial Statements - continued
pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2023 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| United States | $49,545,667 | $— | $— | $49,545,667 |
| France | 4,767,926 | — | — | 4,767,926 |
| Switzerland | 3,376,237 | — | — | 3,376,237 |
| United Kingdom | 3,324,351 | — | — | 3,324,351 |
| Japan | 2,874,881 | — | — | 2,874,881 |
| Hong Kong | 1,438,203 | — | — | 1,438,203 |
| Netherlands | 1,378,209 | — | — | 1,378,209 |
| Canada | 1,277,763 | 0 | — | 1,277,763 |
| Spain | 1,154,455 | — | — | 1,154,455 |
| Other Countries | 6,042,218 | 347,124 | — | 6,389,342 |
| Mutual Funds | 84,789 | — | — | 84,789 |
| Total | $75,264,699 | $347,124 | $— | $75,611,823 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the
MFS Global Research Portfolio
Notes to Financial Statements - continued
lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income. At December 31, 2023, there were no securities on loan or collateral outstanding.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Investment transactions are recorded on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/23 | Year ended
12/31/22 |
| Ordinary income (including any short-term capital gains) | $688,511 | $1,611,095 |
| Long-term capital gains | 3,871,494 | 5,906,011 |
| Total distributions | $4,560,005 | $7,517,106 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/23 | |
| Cost of investments | $49,829,759 |
| Gross appreciation | 26,772,952 |
| Gross depreciation | (990,888) |
| Net unrealized appreciation (depreciation) | $25,782,064 |
| Undistributed ordinary income | 784,743 |
| Undistributed long-term capital gain | 3,910,578 |
| Other temporary differences | (18,061) |
| Total distributable earnings (loss) | $30,459,324 |
MFS Global Research Portfolio
Notes to Financial Statements - continued
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/23 | | Year
ended
12/31/22 |
| Initial Class | $4,217,130 | | $6,902,278 |
| Service Class | 342,875 | | 614,828 |
| Total | $4,560,005 | | $7,517,106 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $300 million | 0.75% |
| In excess of $300 million | 0.675% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this management fee reduction amounted to $9,630, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.74% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.85% of average daily net assets for the Initial Class shares and 1.10% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this reduction amounted to $39,246, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares as well as shareholder servicing and account maintenance activities. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. The distribution and/or service fees are computed daily and paid monthly.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2023, the fee was $492, which equated to 0.0007% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2023, these costs amounted to $137.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is computed daily and paid monthly. The administrative services fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.0281% of the fund's average daily net assets.
MFS Global Research Portfolio
Notes to Financial Statements - continued
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
During the year ended December 31, 2023, pursuant to a policy adopted by the Board of Trustees and designed to comply with Rule 17a-7 under the Investment Company Act of 1940 (the “Act”) and relevant guidance, the fund engaged in purchase transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) which amounted to $79,030.
(4) Portfolio Securities
For the year ended December 31, 2023, purchases and sales of investments, other than short-term obligations, aggregated $16,435,208 and $27,218,894, respectively.
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 22,518 | $686,370 | | 17,285 | $559,151 |
| Service Class | 8,565 | 251,650 | | 24,828 | 797,057 |
| | 31,083 | $938,020 | | 42,113 | $1,356,208 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 144,028 | $4,217,130 | | 231,698 | $6,902,278 |
| Service Class | 11,766 | 342,875 | | 20,736 | 614,828 |
| | 155,794 | $4,560,005 | | 252,434 | $7,517,106 |
| Shares reacquired | | | | | |
| Initial Class | (349,206) | $(10,518,077) | | (293,461) | $(9,234,294) |
| Service Class | (53,511) | (1,628,098) | | (34,451) | (1,102,940) |
| | (402,717) | $(12,146,175) | | (327,912) | $(10,337,234) |
| Net change | | | | | |
| Initial Class | (182,660) | $(5,614,577) | | (44,478) | $(1,772,865) |
| Service Class | (33,180) | (1,033,573) | | 11,113 | 308,945 |
| | (215,840) | $(6,648,150) | | (33,365) | $(1,463,920) |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 14, 2024 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured
MFS Global Research Portfolio
Notes to Financial Statements - continued
uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2023, the fund’s commitment fee and interest expense were $383 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $269,598 | $12,880,615 | $13,065,400 | $39 | $(63) | $84,789 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $24,355 | $— |
MFS Global Research Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Global Research Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Global Research Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 2024
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Global Research Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2024, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 57) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 69) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 72) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 69) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 68) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 68) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 62) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 67) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 67) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 66) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 55) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
MFS Global Research Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
John W. Clark, Jr. (k)
(age 56) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 55) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 56) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 47) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022) |
Amanda S. Mooradian (k)
(age 44) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 53) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 53) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
James O. Yost (k)
(age 63) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Caroselli, Jones and Otis are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
MFS Global Research Portfolio
Trustees and Officers - continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Congress Street, Suite 1
Boston, MA 02114-2016 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Akira Fuse
James Keating | |
MFS Global Research Portfolio
Board Review of Investment Advisory Agreement
MFS Global Research Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2023 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2022 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2022, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 2nd quintile for each of the one- and three-year periods ended December 31, 2022 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS Global Research Portfolio
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate was lower than the Broadridge expense group median and the Fund’s total expense ratio was approximately at the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $300 million. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2023.
MFS Global Research Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $4,259,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 83.65% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2023
MFS® Global Tactical
Allocation Portfolio
MFS® Variable Insurance Trust II
MFS® Global Tactical Allocation Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Global Tactical Allocation Portfolio
| | | Tactical Overlay (b) |
| | | Active Security
Selection (a) | Long | Short | Net Market
Exposure (c) |
| Fixed Income | U.S. | 37.0% | 52.4% | (10.7)% | 78.7% |
| | Emerging Markets | 15.9% | 0.0% | 0.0% | 15.9% |
| | Asia/Pacific ex-Japan | 3.6% | 7.6% | 0.0% | 11.2% |
| | Europe ex-U.K. | 15.5% | 0.0% | (9.4)% | 6.1% |
| | North America ex-U.S. | 4.2% | 0.0% | (2.6)% | 1.6% |
| | Supranational | 1.3% | 0.0% | 0.0% | 1.3% |
| | Japan | 2.6% | 0.0% | (1.4)% | 1.2% |
| | United Kingdom | 5.1% | 0.0% | (7.0)% | (1.9)% |
| | Total | 85.2% | 60.0% | (31.1)% | 114.1% |
| Equity | Europe ex-U.K. | 7.4% | 9.6% | (1.1)% | 15.9% |
| | U.S. Large Cap | 12.1% | 0.8% | (0.3)% | 12.6% |
| | Japan | 2.4% | 2.3% | 0.0% | 4.7% |
| | Emerging Markets | 1.9% | 5.0% | (2.7)% | 4.2% |
| | U.S. Small/Mid Cap | 6.4% | 0.0% | (4.1)% | 2.3% |
| | United Kingdom | 2.6% | 0.0% | (1.3)% | 1.3% |
| | North America ex-U.S. | 0.9% | 0.1% | 0.0% | 1.0% |
| | Asia/Pacific ex-Japan | 0.5% | 1.6% | (6.1)% | (4.0)% |
| | Total | 34.2% | 19.4% | (15.6)% | 38.0% |
| Real Estate-related | U.S. | 0.8% | 0.0% | 0.0% | 0.8% |
| | Non-U.S. | 0.2% | 0.0% | 0.0% | 0.2% |
| | Total | 1.0% | 0.0% | 0.0% | 1.0% |
| Cash | Cash & Cash Equivalents (d) | | | | 2.5% |
| | Other (e) | | | | (55.6)% |
| | Total | | | | (53.1)% |
| | Total Net Exposure Summary | | | | 100.0% |
Strategic Allocation Targets & Net
Exposure Ranges
| Asset Class | Target (w) | Ranges (z) |
| Equities | 35% | 0 to 70% |
| Fixed Income, Cash and Cash Equivalents | 65% | 30 to 100% |
Top ten holdings (c)
| USD Interest Rate Swap, Receive 3.942% - MAR 2026 | 31.6% |
| USD Interest Rate Swap, Receive 3.525% - MAR 2029 | 13.4% |
| U.S. Treasury Note 10 yr Future - MAR 2024 | 8.8% |
| USD Interest Rate Swap, Receive 3.412% - JUN 2027 | 8.8% |
| Australian Bond 10 yr Future - MAR 2024 | 7.6% |
| MSCI Singapore Index Future - JAN 2024 | (3.6)% |
| Russell 2000 Index Future - MAR 2024 | (4.1)% |
| Long Gilt 10 yr Future - MAR 2024 | (6.4)% |
| USD Interest Rate Swap, Pay 3.477% - MAR 2034 | (7.3)% |
| Euro-Bund 10 yr Future - MAR 2024 | (10.0)% |
| (a) | Represents the actively managed portion of the portfolio and for purposes of this presentation, components include the value of securities, less any securities sold short. The bond component will include any accrued interest amounts. This also reflects the equivalent exposure of certain derivative positions. These amounts may be negative from time to time. |
| (b) | Represents the tactical overlay portion of the portfolio which is how the fund manages its exposure to markets and currencies through the use of derivative positions. Percentages reflect the equivalent exposure of those derivative positions. |
| (c) | For purposes of this presentation, the components include the value of securities, less any securities sold short, and reflect the impact of the equivalent exposure of all derivative positions. These amounts may be negative from time to time. The bond component will include any accrued interest amounts. |
MFS Global Tactical Allocation Portfolio
Portfolio Composition - continued
| (d) | Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities. |
| (e) | Other includes currency derivatives and/or the offsetting of the leverage produced by the fund’s derivative positions, including payables and/or receivables of the finance leg of interest rate swaps and the unrealized gain or loss in connection with forward foreign currency exchange contracts. |
| (w) | The strategic asset class allocations have been selected for investment over longer time periods. The actual strategic asset class weightings can deviate due to market movements and cash flows. |
| (z) | The fund’s net exposures to the asset classes referenced will normally fall within these ranges after taking into account the tactical overlay. |
Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The value of derivatives may be different.
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
Percentages are based on net assets as of December 31, 2023.
The portfolio is actively managed and current holdings may be different.
MFS Global Tactical Allocation Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2023, Initial Class shares of the MFS Global Tactical Allocation Portfolio (fund) provided a total return of 9.63%, while Service Class shares of the fund provided a total return of 9.35%. These compare with a return of 5.72% over the same period for the fund’s benchmark, the Bloomberg Global Aggregate Index. The fund’s other benchmarks, the MSCI World Index (net div) and the MFS Global Tactical Allocation Blended Index (Blended Index), generated total returns of 23.79% and 12.68%, respectively. The Blended Index reflects the blended returns of equity and fixed income indices, with percentage allocations to each index designed to resemble the strategic allocations of the fund. The market indices and related percentage allocations used to compile the Blended Index are set forth in the Performance Summary.
The fund’s investment objective is to seek total return. MFS seeks to achieve the fund’s objective by generating returns from a combination of (1) individual security selection of a combination of debt instruments and equity securities and (2) a tactical asset allocation overlay primarily using derivative instruments to manage the fund’s exposure to asset classes (e.g. equity and fixed income), markets (e.g. U.S. and foreign countries), and currencies (e.g. U.S. dollar and Japanese yen). Derivatives include futures, forward contracts, options and swaps.
Market Environment
During the reporting period, central banks around the world had to combat the strongest inflationary pressures in four decades, fueled by the global fiscal response to the pandemic, disrupted supply chains and the dislocations to energy markets stemming from the war in Ukraine. Interest rates rose substantially, but the effects of a tighter monetary policy may not have been fully experienced yet, given that monetary policy works with long and variable lags. Strains resulting from the abrupt tightening of monetary policy began to affect some parts of the economy, most acutely among small and regional US banks, which suffered from deposit flight as depositors sought higher yields on their savings. Additionally, activity in the US housing sector has slowed as a result of higher mortgage rates. China’s abandonment of its Zero-COVID policy ushered in a brief uptick in economic activity in the world’s second-largest economy in early 2023, although its momentum soon stalled as the focus turned to the country’s highly indebted property development sector. In developed markets, consumer demand for services remained stronger than the demand for goods.
Early on, policymakers found themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, central banks focused on controlling price pressures while also confronting increasing financial stability concerns. Central banks had to juggle achieving their inflation mandates while using macroprudential tools (financial policies aimed at safeguarding the stability of the financial system) to keep banking systems liquid, a potentially difficult balancing act, and one that suggested that we may be nearing a peak in policy rates. As inflationary pressures eased toward the end of the period, financial conditions loosened in anticipation of easier monetary policy, boosting the market’s appetite for risk. Rapid advancements in artificial intelligence were a focus for investors.
Normalizing supply chains, low levels of unemployment across developed markets and signs that inflation levels have peaked were supportive factors for the macroeconomic backdrop.
Detractors from Performance
Within the equity portion of the fund, the lag in relative performance against the MSCI World Index was primarily attributable to securities that the fund did not own, notably the strong share price gains and extreme correlation amongst the mega-cap technology-related stocks, or to securities that the fund had underweight positions in. This was a significant headwind for any value manager against the MSCI World Index, as value managers tend not to own many securities within this basket of expensive growth stocks. The fund owned shares of Alphabet, Microsoft, and NVIDIA, but did not own shares of the other four ‘Magnificent Seven’ stocks (Apple, Amazon.com, Meta Platforms, Tesla) due to concerns about the durability of the business and/or high expectations priced into high valuations.
At a sector level, the largest detractors from relative performance were the fund’s underweight position and stock selection in information technology and stock selection within the health care and communication services sectors. Within the information technology sector, the fund's very small position in computer graphics processor maker NVIDIA, which significantly outperformed the benchmark, weakened relative returns. The stock price of NVIDIA advanced as the company reported earnings per share results well above expectations, primarily driven by stronger-than-expected revenue growth within its data center, generative AI (artificial intelligence), and networking segments. Additionally, not holding shares of computer and personal electronics maker Apple and the fund’s underweight position in software giant Microsoft further dampened relative results. Within the health care sector, the fund’s overweight positions in pharmaceutical and diagnostic company Roche Holding (Switzerland), crop science and pharmaceuticals company Bayer (Germany), and medical products maker Johnson & Johnson held back relative performance. Within the communication services sector, not holding shares of social networking service provider Meta Platforms detracted from relative returns. The stock price of Meta Platforms advanced as the company reported better-than-expected earnings driven by solid revenue results and strong user engagement across its applications.
MFS Global Tactical Allocation Portfolio
Management Review - continued
Stock selection and an underweight position in the consumer discretionary sector weakened relative performance. Within this sector, not owning shares of internet retailer Amazon.com and electric vehicle manufacturer Tesla weighed on relative performance. Despite operating margin pressures due to aggressive vehicle price cuts, the share price of Tesla climbed as the company delivered a record number of vehicles.
Elsewhere, the fund’s exposure to the Standard & Poor’s 500 Index, via put options, detracted from relative performance.
Within the fixed income portion of the fund, overweight exposures to both the Japanese yen and Chinese yuan weakened the fund’s performance relative to the Bloomberg Global Aggregate Index.
Within the fund’s tactical overlay, long exposures to the United Kingdom and Hong Kong equity markets, via holdings of equity index futures, and short exposure to the Netherlands equity market, detracted from relative performance. Additionally, the fund’s timing of exposure to the Canadian fixed income market, via fixed income derivative futures, also weakened relative results. From a currency perspective, the fund’s short exposure to Swiss franc and its timing of euro exposure further hindered relative performance.
Contributors to Performance
Within the equity portion of the fund, stock selection within the industrials sector contributed to performance relative to the MSCI World Index. Within this sector, an overweight position in diversified industrial manufacturer Eaton, electrical distribution equipment manufacturer Schneider Electric (France), and electronics company Hitachi (Japan) supported relative results. The stock price of Eaton advanced as the company reported above-consensus earnings per share results and raised its organic sales guidance, driven by a favorable outlook in its Electrical Americas division.
Stock selection within both the utilities and energy sectors also strengthened relative performance. Within the utilities sector, there were no individual stocks, either in the fund or the benchmark, that were among the fund’s top relative contributors during the period. Within the energy sector, not owning shares of integrated energy company Chevron and an underweight position in integrated oil and gas company ExxonMobil benefited relative returns.
Elsewhere, the fund’s overweight positions in investment management and banking firm UBS (Switzerland), semiconductor company Intel, semiconductor solutions provider NXP Semiconductors (Netherlands), and supermarkets and convenience stores operator Tesco (United Kingdom) aided relative returns. The fund’s avoidance of health insurance and Medicare/Medicaid provider UnitedHealth Group also helped. The share price of UnitedHealth Group declined as the company posted subdued medical loss ratio figures and higher-than-anticipated investment costs in its Optum Insights segment.
During the reporting period, the fund's relative currency exposure within the equity portion of the fund, resulting primarily from differences between the fund's and the benchmark's exposures to holdings of securities denominated in foreign currencies, was a contributor to relative performance. All of MFS' investment decisions are driven by the fundamentals of each individual opportunity and as such, it is common for our funds to have different currency exposure than the benchmark.
Within the fixed income portion of the fund, overweight exposures and security selection within both the industrials and financial institutions sectors benefited the fund’s performance relative to the Bloomberg Global Aggregate Index. An underweight exposure and bond selection within the treasury sector also benefited relative results. From a credit quality perspective, the fund's out-of-benchmark exposure to “BB” and “B” rated(r) bonds, and favorable security selection within “BBB” and “A” rated bonds, further supported relative performance.
Within the fund’s tactical overlay, a long exposure to emerging equity markets, most notably Turkey, and a short exposure to the Singapore equity markets, via equity index futures, contributed to relative performance. From a currency perspective, the fund’s overweight to the Swedish krona also contributed to performance.
Respectfully,
Portfolio Manager(s)
Pilar Gomez-Bravo, Steven Gorham, Andy Li, John Mitchell, Johnathan Munko, Benjamin Nastou, Jonathan Sage, Natalie Shapiro, Erich Shigley, David Shindler, Robert Spector, and Erik Weisman
Note to Shareholders: Effective January 20, 2023, John Mitchell was added as a Portfolio Manager and Henry Peabody is no longer a Portfolio Manager of the fund.
| (r) | Securities rated “BBB”, “Baa”, or higher are considered investment grade; securities rated “BB”, “Ba”, or below are considered non-investment grade. Ratings are assigned to underlying securities utilizing ratings from Moody's, Fitch, and Standard & Poor's and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the |
MFS Global Tactical Allocation Portfolio
Management Review - continued
lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). For securities that are not rated by any of the rating agencies, the security is considered Not Rated.
| (y) | A yield curve graphically depicts the yields of different maturity bonds of the same credit quality and type; a normal yield curve is upward sloping, with short-term rates lower than long-term rates. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Global Tactical Allocation Portfolio
Performance Summary Through 12/31/23
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/23
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 11/07/1994 | 9.63% | 4.94% | 3.87% |
| Service Class | 8/24/2001 | 9.35% | 4.69% | 3.62% |
Comparative benchmark(s)
| Bloomberg Global Aggregate Index (f) | 5.72% | (0.32)% | 0.38% |
| MFS Global Tactical Allocation Blended Index (f)(w) | 12.68% | 5.37% | 4.54% |
| Bloomberg Global Aggregate Index (USD Hedged) (f) | 7.15% | 1.40% | 2.41% |
| MSCI World Index (net div) (f) | 23.79% | 12.80% | 8.60% |
| (f) | Source: FactSet Research Systems Inc. |
| (w) | The MFS Global Tactical Allocation Blended Index (a custom index) was comprised of the following at the beginning and at the end of the reporting period: |
| | 12/31/23 |
| MSCI World Index (net div) | 35% |
| Bloomberg Global Aggregate Index (USD Hedged) | 54% |
| Bloomberg Global Aggregate Index | 11% |
Benchmark Definition(s)
Bloomberg Global Aggregate Index(a) – provides a broad-based measure of the global investment-grade fixed income markets. The three major components of this index are the U.S. Aggregate, the Pan-European Aggregate, and the Asian-Pacific Aggregate Indices. The index also includes Eurodollar and Euro-Yen corporate bonds, Canadian government, agency and corporate securities, and USD investment grade 144A securities.
MFS Global Tactical Allocation Portfolio
Performance Summary – continued
Bloomberg Global Aggregate Index(a) (USD Hedged) – provides a broad-based measure of the currency-hedged performance of global investment-grade fixed income markets. The three major components of this index are the U.S. Aggregate, the Pan-European Aggregate, and the Asian-Pacific Aggregate Indices. The index also includes Eurodollar and Euro-Yen corporate bonds, Canadian government, agency and corporate securities, and USD investment grade 144A securities.
MSCI World Index(e) (net div) – a market capitalization-weighted index that is designed to measure equity market performance in the global developed markets.
It is not possible to invest directly in an index.
| (a) | Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg's licensors own all proprietary rights in the Bloomberg Indices. Bloomberg neither approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. |
| (e) | Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Global Tactical Allocation Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2023 through December 31, 2023
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2023 through December 31, 2023.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/23 | Ending
Account Value
12/31/23 | Expenses
Paid During
Period (p)
7/01/23-12/31/23 |
| Initial Class | Actual | 0.84% | $1,000.00 | $1,057.17 | $4.36 |
| Hypothetical (h) | 0.84% | $1,000.00 | $1,020.97 | $4.28 |
| Service Class | Actual | 1.09% | $1,000.00 | $1,056.08 | $5.65 |
| Hypothetical (h) | 1.09% | $1,000.00 | $1,019.71 | $5.55 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
Notes to Expense Table
Expense ratios include 0.08% of interest expense on uncovered collateral or margin obligations with the broker (See Note 2 of the Notes to Financial Statements) that are outside of the expense limitation arrangement (See Note 3 of the Notes to Financial Statements).
MFS Global Tactical Allocation Portfolio
Portfolio of Investments − 12/31/23
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Bonds – 62.7% |
| Aerospace & Defense – 0.5% |
| Boeing Co., 5.805%, 5/01/2050 | | $ | 592,000 | $ 613,046 |
| HEICO Corp., 5.35%, 8/01/2033 | | | 379,000 | 388,004 |
| Thales S.A., 3.625%, 6/14/2029 | | EUR | 300,000 | 338,352 |
| Thales S.A., 4.25%, 10/18/2031 | | | 300,000 | 351,605 |
| TransDigm, Inc., 6.875%, 12/15/2030 (n) | | $ | 274,000 | 282,220 |
| | | | | $1,973,227 |
| Apparel Manufacturers – 0.1% |
| Tapestry, Inc., 7%, 11/27/2026 | | $ | 82,000 | $ 85,008 |
| Tapestry, Inc., 3.05%, 3/15/2032 | | | 252,000 | 205,000 |
| | | | | $290,008 |
| Asset-Backed & Securitized – 4.6% |
| Arbor Realty Trust, Inc., CLO, 2021-FL1, “B”, FLR, 6.976% ((SOFR - 1mo. + 0.11448%) + 1.5%), 12/15/2035 (n) | | $ | 214,500 | $ 208,666 |
| Arbor Realty Trust, Inc., CLO, 2021-FL2, “B”, FLR, 7.048% ((SOFR - 1mo. + 0.11448%) + 1.6%), 5/15/2036 (n) | | | 143,000 | 139,187 |
| Arbor Realty Trust, Inc., CLO, 2021-FL2, “C”, FLR, 7.398% ((SOFR - 1mo. + 0.11448%) + 1.95%), 5/15/2036 (n) | | | 426,500 | 405,784 |
| Arbor Realty Trust, Inc., CLO, 2022-FL1, “B”, FLR, 7.446% (SOFR - 30 day + 2.1%), 1/15/2037 (n) | | | 794,500 | 774,826 |
| Arbor Realty Trust, Inc., CLO, 2022-FL1, “C”, FLR, 7.646% (SOFR - 30 day + 2.3%), 1/15/2037 (n) | | | 765,000 | 737,103 |
| AREIT 2022-CRE6 Trust, “B”, FLR, 7.187% (SOFR - 30 day + 1.85%), 1/20/2037 (n) | | | 289,000 | 280,061 |
| AREIT 2022-CRE6 Trust, “C”, FLR, 7.488% (SOFR - 30 day + 2.15%), 1/20/2037 (n) | | | 119,000 | 113,305 |
| AREIT 2022-CRE6 Trust, “D”, FLR, 8.188% (SOFR - 30 day + 2.85%), 1/20/2037 (n) | | | 100,000 | 94,087 |
| BBCMS Mortgage Trust, 2020-C7, “XA”, 1.615%, 4/15/2053 (i) | | | 983,377 | 61,557 |
| BBCMS Mortgage Trust, 2021-C10, “XA”, 1.285%, 7/15/2054 (i) | | | 2,900,881 | 180,373 |
| BBCMS Mortgage Trust, 2021-C9, “XA”, 1.609%, 2/15/2054 (i) | | | 6,588,332 | 537,240 |
| BBCMS Mortgage Trust, 2022-C18, “AS”, 6.148%, 12/15/2055 | | | 265,075 | 275,936 |
| Benchmark 2021-B24 Mortgage Trust, “XA”, 1.146%, 3/15/2054 (i) | | | 2,021,045 | 107,643 |
| Benchmark 2021-B26 Mortgage Trust, “XA”, 0.884%, 6/15/2054 (i) | | | 5,575,146 | 245,296 |
| Benchmark 2021-B27 Mortgage Trust, “XA”, 1.26%, 7/15/2054 (i) | | | 6,726,180 | 415,276 |
| Benchmark 2021-B28 Mortgage Trust, “XA”, 1.273%, 8/15/2054 (i) | | | 5,248,492 | 345,448 |
| Benchmark 2022-B37 Mortgage Trust, “AS”, 5.75%, 11/15/2055 | | | 105,000 | 104,839 |
| Brazos Securitization LLC, 5.413%, 9/01/2050 (n) | | | 246,000 | 251,412 |
| BSPRT 2021-FL7 Issuer Ltd., “B”, FLR, 7.498% ((SOFR - 1mo. + 0.11448%) + 2.05%), 12/15/2038 (n) | | | 177,500 | 173,736 |
| BSPRT 2021-FL7 Issuer Ltd., “C”, FLR, 7.748% ((SOFR - 1mo. + 0.11448%) + 2.3%), 12/15/2038 (n) | | | 161,000 | 156,911 |
| Business Jet Securities LLC, 2020-1A, “A”, 2.981%, 11/15/2035 (n) | | | 65,611 | 62,697 |
| Business Jet Securities LLC, 2021-1A, “A”, 2.162%, 4/15/2036 (n) | | | 119,967 | 110,973 |
| BXMT 2021-FL4 Ltd., “AS”, FLR, 6.776% ((SOFR - 1mo. + 0.11448%) + 1.3%), 5/15/2038 (n) | | | 900,000 | 832,962 |
| BXMT 2021-FL4 Ltd., “B”, FLR, 7.026% ((SOFR - 1mo. + 0.11448%) + 1.55%), 5/15/2038 (n) | | | 1,797,000 | 1,645,209 |
| Capital Automotive, 2020-1A, “A4”, REIT, 3.19%, 2/15/2050 (n) | | | 258,629 | 247,537 |
| CF Hippolyta Issuer LLC, 2020-1, “A1”, 1.69%, 7/15/2060 (n) | | | 197,245 | 182,288 |
| Chesapeake Funding II LLC, 2023-1A, “A1”, 5.65%, 5/15/2035 (n) | | | 246,810 | 247,460 |
| CNH Equipment Trust 2023-A, “A2”, 5.34%, 9/15/2026 | | | 149,393 | 149,131 |
| Commercial Mortgage Pass-Through Certificates, 2021-BN32, “XA”, 0.773%, 4/15/2054 (i) | | | 1,234,783 | 47,530 |
| Commercial Mortgage Pass-Through Certificates, 2021-BN34, “XA”, 0.975%, 6/15/2063 (i) | | | 2,963,915 | 148,392 |
| Commercial Mortgage Pass-Through Certificates, 2021-BN35, “XA”, 1.04%, 6/15/2064 (i) | | | 2,923,800 | 158,924 |
| Commercial Mortgage Pass-Through Certificates, 2022-BNK41, “AS”, 3.79%, 4/15/2065 | | | 592,000 | 520,377 |
| Commercial Mortgage Pass-Through Certificates, 2023-BNK46, “A4”, 5.745%, 8/15/2056 | | | 768,000 | 807,487 |
| Credit Acceptance Auto Loan Trust, 2021-3A, “A”, 1%, 5/15/2030 (n) | | | 325,406 | 320,979 |
| DT Auto Owner Trust, 2023-1A, “A”, 5.48%, 4/15/2027 (n) | | | 151,549 | 151,266 |
| Fortress CBO Investments Ltd., 2022-FL3, “AS”, FLR, 7.587% (SOFR - 30 day + 2.25%), 2/23/2039 (n) | | | 269,500 | 261,503 |
| FS Rialto 2021-FL2 Issuer Ltd., “AS”, FLR, 7.022% ((SOFR - 1mo. + 0.11448%) + 1.55%), 5/16/2038 (n) | | | 701,500 | 678,020 |
| GreatAmerica Leasing Receivables Funding LLC, 2023-1, “A2”, 5.35%, 2/16/2026 (n) | | | 139,000 | 138,874 |
| MF1 2021-FL5 Ltd., “C”, FLR, 7.176% ((SOFR - 1mo. + 0.11448%) + 1.7%), 7/15/2036 (n) | | | 200,000 | 191,804 |
| MF1 2021-FL6 Ltd., “AS”, FLR, 6.896% ((SOFR - 1mo. + 0.11448%) + 1.45%), 7/16/2036 (n) | | | 1,050,000 | 1,028,314 |
| MF1 2021-FL6 Ltd., “B”, FLR, 7.122% ((SOFR - 1mo. + 0.11448%) + 1.65%), 7/16/2036 (n) | | | 600,000 | 580,107 |
| MF1 2022-FL8 Ltd., “A”, FLR, 6.706% (SOFR - 1mo. + 1.35%), 2/19/2037 (n) | | | 250,000 | 245,221 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Asset-Backed & Securitized – continued |
| MF1 2022-FL8 Ltd., “B”, FLR, 7.305% (SOFR - 30 day + 1.95%), 2/19/2037 (n) | | $ | 281,312 | $ 274,020 |
| Morgan Stanley Capital I Trust, 2021-L5, “XA”, 1.29%, 5/15/2054 (i) | | | 2,251,903 | 137,849 |
| Morgan Stanley Capital I Trust, 2021-L6, “XA”, 1.208%, 6/15/2054 (i) | | | 4,793,476 | 265,817 |
| Navistar Financial Dealer Note Master Owner Trust, 2022-1, “A”, FLR, 6.588% (SOFR - 30 day + 1.25%), 5/25/2027 (n) | | | 236,000 | 236,282 |
| RAC Bond Co. PLC, 4.87%, 5/06/2046 | | GBP | 310,000 | 383,238 |
| Starwood Commercial Mortgage, 2021-FL2, “AS”, FLR, 6.922% ((SOFR - 1mo. + 0.11448%) + 1.45%), 4/18/2038 (n) | | $ | 700,000 | 653,646 |
| Starwood Commercial Mortgage, 2021-FL2, “B”, FLR, 7.272% ((SOFR - 1mo. + 0.11448%) + 1.8%), 4/18/2038 (n) | | | 534,500 | 497,781 |
| TPG Real Estate Finance, 2021-FL4, “AS”, FLR, 6.876% ((SOFR - 1mo. + 0.11448%) + 1.4%), 3/15/2038 (n) | | | 350,000 | 339,952 |
| Wells Fargo Commercial Mortgage Trust, 2021-C60, “XA”, 1.525%, 8/15/2054 (i) | | | 4,892,098 | 370,260 |
| Westlake Automobile Receivables Trust, 2023-1A, “A2B”, FLR, 6.188% (SOFR - 1mo. + 0.85%), 6/15/2026 (n) | | | 82,153 | 82,209 |
| | | | | $17,606,795 |
| Automotive – 0.4% |
| Hyundai Capital America, 6.375%, 4/08/2030 (n) | | $ | 313,000 | $ 332,981 |
| LKQ Corp., 6.25%, 6/15/2033 | | | 195,000 | 203,770 |
| Volkswagen Group of America Finance LLC, 6.2%, 11/16/2028 (n) | | | 556,000 | 583,282 |
| Volkswagen International Finance N.V., 7.5%, 12/31/2099 | | EUR | 200,000 | 239,833 |
| Volkswagen International Finance N.V., 7.875%, 12/31/2099 | | | 100,000 | 124,138 |
| | | | | $1,484,004 |
| Broadcasting – 0.5% |
| Discovery Communications LLC, 4.125%, 5/15/2029 | | $ | 244,000 | $ 231,174 |
| Prosus N.V., 3.68%, 1/21/2030 (n) | | | 240,000 | 210,063 |
| Ubisoft Entertainment S.A., 0.878%, 11/24/2027 | | EUR | 900,000 | 834,288 |
| WarnerMedia Holdings, Inc., 4.279%, 3/15/2032 | | $ | 586,000 | 536,310 |
| | | | | $1,811,835 |
| Brokerage & Asset Managers – 0.5% |
| Charles Schwab Corp., 5.643% to 5/19/2028, FLR (SOFR - 1 day + 2.210%) to 5/19/2029 | | $ | 185,000 | $ 189,776 |
| Charles Schwab Corp., 6.136% to 8/24/2033, FLR (SOFR - 1 day + 2.01%) to 8/24/2034 | | | 181,000 | 190,788 |
| Low Income Investment Fund, 3.386%, 7/01/2026 | | | 150,000 | 141,468 |
| Low Income Investment Fund, 3.711%, 7/01/2029 | | | 400,000 | 358,639 |
| LPL Holdings, Inc., 4%, 3/15/2029 (n) | | | 641,000 | 593,192 |
| LSEG Netherlands B.V., 4.231%, 9/29/2030 | | EUR | 280,000 | 326,273 |
| | | | | $1,800,136 |
| Building – 0.5% |
| CEMEX S.A.B. de C.V., 3.125%, 3/19/2026 | | EUR | 430,000 | $ 464,396 |
| HeidelbergCement Finance Luxembourg S.A., 4.875%, 11/21/2033 | | | 245,000 | 287,920 |
| Holcim Sterling Finance (Netherlands) B.V., 2.25%, 4/04/2034 | | GBP | 285,000 | 280,231 |
| Imerys S.A., 4.75%, 11/29/2029 | | EUR | 500,000 | 560,829 |
| Vulcan Materials Co., 3.5%, 6/01/2030 | | $ | 362,000 | 336,707 |
| | | | | $1,930,083 |
| Business Services – 0.3% |
| Corning, Inc., 4.125%, 5/15/2031 | | EUR | 260,000 | $ 300,259 |
| Euronet Worldwide, Inc., 1.375%, 5/22/2026 | | | 370,000 | 382,183 |
| Fiserv, Inc., 4.4%, 7/01/2049 | | $ | 356,000 | 313,782 |
| Mastercard, Inc., 3.85%, 3/26/2050 | | | 310,000 | 270,381 |
| | | | | $1,266,605 |
| Cable TV – 0.4% |
| Charter Communications Operating LLC/Charter Communications Operating Capital Corp., 6.384%, 10/23/2035 | | $ | 281,000 | $ 285,241 |
| Charter Communications Operating LLC/Charter Communications Operating Capital Corp., 4.8%, 3/01/2050 | | | 227,000 | 175,714 |
| Cox Communications, Inc., 5.45%, 9/15/2028 (n) | | | 389,000 | 397,040 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Cable TV – continued |
| SES S.A., 2.875% to 8/27/2026, FLR (EUR Swap Rate - 5yr. + 3.19%) to 8/27/2031, FLR (EUR Swap Rate - 5yr. + 3.44%) to 8/27/2046, FLR (EUR Swap Rate - 5yr. + 4.19%) to 12/31/2099 | | EUR | 655,000 | $ 656,321 |
| | | | | $1,514,316 |
| Chemicals – 0.2% |
| Arkema S.A., 4.25%, 5/20/2030 | | EUR | 300,000 | $ 345,758 |
| Arkema S.A., 1.5% to 1/21/2026, FLR (EUR Swap Rate-5yr. + 1.571%) to 1/21/2031, FLR (EUR Swap Rate-5yr. + 1.821%) to 1/21/2046, FLR (EUR Swap Rate-5yr. + 2.571%) to 1/21/2171 | | | 300,000 | 306,267 |
| | | | | $652,025 |
| Computer Software – 0.1% |
| Microsoft Corp., 2.525%, 6/01/2050 (f) | | $ | 523,000 | $ 357,038 |
| Oracle Corp., 4%, 7/15/2046 | | | 265,000 | 212,409 |
| | | | | $569,447 |
| Computer Software - Systems – 0.1% |
| Apple, Inc., 4.5%, 2/23/2036 | | $ | 236,000 | $ 241,218 |
| Conglomerates – 0.6% |
| Grupo KUO S.A.B. de C.V., 5.75%, 7/07/2027 (n) | | $ | 306,000 | $ 271,349 |
| nVent Finance S.à r.l., 5.65%, 5/15/2033 | | | 427,000 | 433,790 |
| Regal Rexnord Corp., 6.05%, 4/15/2028 (n) | | | 558,000 | 564,850 |
| Veralto Corp., 4.15%, 9/19/2031 | | EUR | 257,000 | 294,718 |
| Westinghouse Air Brake Technologies Corp., 4.7%, 9/15/2028 | | $ | 710,000 | 702,085 |
| | | | | $2,266,792 |
| Consumer Products – 0.1% |
| Kenvue, Inc., 5.05%, 3/22/2053 | | $ | 515,000 | $ 532,815 |
| Consumer Services – 0.1% |
| Rentokil Initial PLC, 5%, 6/27/2032 | | GBP | 360,000 | $ 460,790 |
| Containers – 0.1% |
| DS Smith PLC, 4.5%, 7/27/2030 | | EUR | 280,000 | $ 321,619 |
| Electronics – 0.1% |
| Intel Corp., 5.7%, 2/10/2053 | | $ | 302,000 | $ 326,495 |
| NXP B.V./NXP Funding LLC/NXP USA, Inc., 3.4%, 5/01/2030 | | | 156,000 | 143,355 |
| NXP B.V./NXP Funding LLC/NXP USA, Inc., 5%, 1/15/2033 | | | 72,000 | 72,112 |
| | | | | $541,962 |
| Emerging Market Quasi-Sovereign – 0.7% |
| Bank Gospodarstwa Krajowego (Republic of Poland), 6.25%, 10/31/2028 (n) | | $ | 253,000 | $ 266,915 |
| Bank Gospodarstwa Krajowego (Republic of Poland), 5.375%, 5/22/2033 (n) | | | 408,000 | 413,350 |
| Emirates NBD Bank PJSC, 5.875%, 10/11/2028 | | | 404,000 | 417,332 |
| Eustream A.S., 1.625%, 6/25/2027 | | EUR | 470,000 | 426,581 |
| First Abu Dhabi Bank PJSC, 6.32% to 4/04/2029, FLR (CMT - 5yr. + 1.7%) to 4/04/2034 | | $ | 384,000 | 395,251 |
| Magyar Export-Import Bank PLC (Republic of Hungary), 6.125%, 12/04/2027 (n) | | | 200,000 | 203,334 |
| Petroleos Mexicanos, 6.875%, 8/04/2026 | | | 440,000 | 427,248 |
| Qatar Petroleum, 3.125%, 7/12/2041 | | | 236,000 | 181,136 |
| | | | | $2,731,147 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Emerging Market Sovereign – 10.8% |
| Czech Republic, 2.5%, 8/25/2028 | | CZK | 24,880,000 | $ 1,053,992 |
| Czech Republic, 2%, 10/13/2033 | | | 29,000,000 | 1,111,437 |
| Dominican Republic, 7.05%, 2/03/2031 (n) | | $ | 179,000 | 187,950 |
| Dominican Republic, 4.875%, 9/23/2032 | | | 750,000 | 681,862 |
| Federative Republic of Brazil, 10%, 1/01/2029 | | BRL | 8,500,000 | 1,743,642 |
| Hellenic Republic (Republic of Greece), 3.875%, 6/15/2028 (n) | | EUR | 2,557,000 | 2,978,871 |
| Hellenic Republic (Republic of Greece), 1.75%, 6/18/2032 (n) | | | 2,596,000 | 2,605,618 |
| Hellenic Republic (Republic of Greece), 4.25%, 6/15/2033 (n) | | | 3,123,000 | 3,760,774 |
| Hellenic Republic (Republic of Greece), 4.375%, 7/18/2038 | | | 420,000 | 509,436 |
| Oriental Republic of Uruguay, 8.25%, 5/21/2031 | | UYU | 55,336,000 | 1,306,474 |
| Oriental Republic of Uruguay, 9.75%, 7/20/2033 | | | 22,117,000 | 569,629 |
| People's Republic of China, 3.13%, 11/21/2029 | | CNY | 13,500,000 | 1,971,359 |
| People's Republic of China, 2.88%, 2/25/2033 | | | 30,810,000 | 4,446,124 |
| Republic of Korea, 2.375%, 12/10/2027 | | KRW | 1,800,000,000 | 1,355,709 |
| Republic of Korea, 1.875%, 6/10/2029 | | | 8,135,190,000 | 5,902,192 |
| Republic of Korea, 1.375%, 6/10/2030 | | | 6,060,400,000 | 4,199,345 |
| Republic of Romania, 6.375%, 9/18/2033 | | EUR | 245,000 | 285,255 |
| Republic of Serbia, 6.5%, 9/26/2033 (n) | | $ | 255,000 | 261,375 |
| United Mexican States, 7.5%, 6/03/2027 | | MXN | 51,200,000 | 2,854,548 |
| United Mexican States, 7.75%, 5/29/2031 | | | 56,700,000 | 3,113,041 |
| United Mexican States, 6.338%, 5/04/2053 | | $ | 474,000 | 482,542 |
| United Mexican States, 3.771%, 5/24/2061 | | | 334,000 | 226,233 |
| | | | | $41,607,408 |
| Energy - Independent – 0.6% |
| Occidental Petroleum Corp., 6.45%, 9/15/2036 | | $ | 360,000 | $ 380,880 |
| Pioneer Natural Resources Co., 2.15%, 1/15/2031 | | | 470,000 | 399,288 |
| Santos Finance Ltd., 6.875%, 9/19/2033 (n) | | | 354,000 | 375,425 |
| Tengizchevroil Finance Co. International Ltd., 4%, 8/15/2026 (n) | | | 1,200,000 | 1,122,552 |
| | | | | $2,278,145 |
| Energy - Integrated – 0.3% |
| BP Capital Markets America, Inc., 4.812%, 2/13/2033 | | $ | 279,000 | $ 281,292 |
| BP Capital Markets B.V., 4.323%, 5/12/2035 | | EUR | 340,000 | 397,978 |
| BP Capital Markets B.V., 0.933%, 12/04/2040 | | | 180,000 | 131,380 |
| Exxon Mobil Corp., 1.408%, 6/26/2039 | | | 380,000 | 310,763 |
| | | | | $1,121,413 |
| Engineering - Construction – 0.1% |
| John Deere Bank S.A., 5.125%, 10/18/2028 | | GBP | 280,000 | $ 372,190 |
| Financial Institutions – 1.0% |
| Avolon Holdings Funding Ltd., 4.25%, 4/15/2026 (n) | | $ | 263,000 | $ 254,009 |
| Corporacion Inmobiliaria Vesta S.A.B. de C.V., 3.625%, 5/13/2031 | | | 265,000 | 227,439 |
| CPI Property Group S.A., 3.75% to 7/27/2028, FLR (EUR Swap Rate - 5yr. + 4.338%) to 7/27/2033, FLR (EUR Swap Rate - 5yr. + 4.588%) to 7/27/2048, FLR (EUR Swap Rate - 5yr. + 5.338%) to 1/27/2170 | | EUR | 510,000 | 129,993 |
| CTP N.V., 0.875%, 1/20/2026 | | | 250,000 | 255,551 |
| Global Aircraft Leasing Co. Ltd., 6.5% (6.5% Cash or 7.25% PIK), 9/15/2024 (n)(p) | | $ | 384,000 | 360,960 |
| Globalworth Ltd., REIT, 2.95%, 7/29/2026 | | EUR | 720,000 | 650,693 |
| Grand City Properties S.A., 5.901% to 10/24/2023, FLR (EUR Swap Rate - 5yr. + 2.432%) to 10/24/2028, FLR (EUR Swap Rate - 5yr. + 2.682%) to 10/24/2043, FLR (EUR Swap Rate - 5yr. + 3.432%) to 10/24/2169 | | | 600,000 | 369,095 |
| Macquarie AirFinance Holdings Ltd., 8.125%, 3/30/2029 (n) | | $ | 292,000 | 305,205 |
| Samhallsbyggnadsbolaget i Norden AB, 1.75%, 1/14/2025 | | EUR | 570,000 | 541,166 |
| Samhallsbyggnadsbolaget i Norden AB, 2.375%, 9/04/2026 | | | 370,000 | 292,200 |
| SBB Treasury Oyj, 0.75%, 12/14/2028 | | | 280,000 | 183,846 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Financial Institutions – continued |
| VGP N.V., 1.5%, 4/08/2029 | | EUR | 200,000 | $ 171,164 |
| | | | | $3,741,321 |
| Food & Beverages – 1.2% |
| Anheuser-Busch InBev S.A./N.V., 2%, 1/23/2035 | | EUR | 330,000 | $ 326,346 |
| Anheuser-Busch InBev Worldwide, Inc., 4%, 4/13/2028 | | $ | 190,000 | 187,664 |
| Anheuser-Busch InBev Worldwide, Inc., 4.375%, 4/15/2038 | | | 362,000 | 343,293 |
| Anheuser-Busch InBev Worldwide, Inc., 5.55%, 1/23/2049 | | | 160,000 | 171,938 |
| Bacardi Ltd., 5.15%, 5/15/2038 (n) | | | 335,000 | 318,512 |
| Bacardi-Martini B.V., 5.4%, 6/15/2033 (n) | | | 266,000 | 267,330 |
| Carlsberg Breweries A.S., 4.25%, 10/05/2033 | | EUR | 178,000 | 208,789 |
| Constellation Brands, Inc., 3.15%, 8/01/2029 | | $ | 304,000 | 282,530 |
| Constellation Brands, Inc., 2.25%, 8/01/2031 | | | 169,000 | 142,005 |
| Danone S.A., 3.706%, 11/13/2029 | | EUR | 300,000 | 345,099 |
| JBS USA Lux S.A./JBS USA Food Co./JBS USA Finance, Inc., 3%, 2/02/2029 | | $ | 341,000 | 299,942 |
| JDE Peet's N.V., 4.5%, 1/23/2034 | | EUR | 120,000 | 139,153 |
| JM Smucker Co., 6.5%, 11/15/2053 | | $ | 309,000 | 356,351 |
| Kraft Heinz Foods Co., 3.875%, 5/15/2027 | | | 332,000 | 325,633 |
| Pernod Ricard S.A., 3.75%, 9/15/2033 | | EUR | 200,000 | 229,968 |
| PT Indofood CBP Sukses Makmur Tbk, 3.398%, 6/09/2031 | | $ | 356,000 | 306,905 |
| Viterra Finance B.V., 3.2%, 4/21/2031 (n) | | | 223,000 | 192,174 |
| | | | | $4,443,632 |
| Gaming & Lodging – 0.1% |
| IHG Finance LLC, 4.375%, 11/28/2029 | | EUR | 100,000 | $ 114,412 |
| Marriott International, Inc., 2.85%, 4/15/2031 | | $ | 440,000 | 380,808 |
| | | | | $495,220 |
| Industrial – 0.1% |
| Arcadis N.V., 4.875%, 2/28/2028 | | EUR | 269,000 | $ 307,238 |
| Trustees of the University of Pennsylvania, 2.396%, 10/01/2050 | | $ | 409,000 | 261,798 |
| | | | | $569,036 |
| Insurance – 0.5% |
| Allianz SE, 3.2% to 4/30/2028, FLR (CMT - 5yr. + 2.165%) to 4/30/2171 (n) | | $ | 600,000 | $ 473,579 |
| ASR Nederland N.V., 7% to 12/07/2033, FLR (EUR Swap Rate - 5yr. + 5.3%) to 12/07/2043 | | EUR | 330,000 | 410,243 |
| Corebridge Financial, Inc., 4.35%, 4/05/2042 | | $ | 541,000 | 458,526 |
| Equitable Holdings, Inc., 5.594%, 1/11/2033 | | | 317,000 | 325,495 |
| Groupe des Assurances du Credit Mutuel, 1.85% to 4/21/2032, FLR (EURIBOR - 3mo. + 2.65%) to 4/21/2042 | | EUR | 300,000 | 267,260 |
| Sogecap S.A., 6.5% to 5/16/2034, FLR (EURIBOR - 3mo. + 4.4%) to 5/16/2044 | | | 100,000 | 119,056 |
| | | | | $2,054,159 |
| Insurance - Health – 0.1% |
| UnitedHealth Group, Inc., 4.625%, 7/15/2035 | | $ | 258,000 | $ 259,273 |
| Insurance - Property & Casualty – 0.6% |
| American International Group, Inc., 5.125%, 3/27/2033 | | $ | 329,000 | $ 333,863 |
| Arthur J. Gallagher & Co., 6.5%, 2/15/2034 | | | 195,000 | 213,160 |
| Arthur J. Gallagher & Co., 6.75%, 2/15/2054 | | | 262,000 | 305,696 |
| Fairfax Financial Holdings Ltd., 4.25%, 12/06/2027 | | CAD | 760,000 | 565,447 |
| QBE Insurance Group Ltd., 2.5% to 9/13/2028, FLR (GBP Government Yield - 5yr. + 2.061%) to 9/13/2038 | | GBP | 408,000 | 440,580 |
| RenaissanceRe Holdings Ltd., 5.75%, 6/05/2033 | | $ | 416,000 | 419,148 |
| | | | | $2,277,894 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| International Market Quasi-Sovereign – 0.7% |
| Electricite de France S.A., 6.25%, 5/23/2033 (n) | | $ | 300,000 | $ 324,656 |
| Enbw International Finance B.V., 4.3%, 5/23/2034 | | EUR | 180,000 | 210,042 |
| Landsbankinn hf., 6.375%, 3/12/2027 | | | 160,000 | 182,916 |
| Logicor Financing S.à r.l., 1.625%, 1/17/2030 | | | 280,000 | 263,488 |
| Logicor Financing S.à r.l., 0.875%, 1/14/2031 | | | 200,000 | 169,726 |
| NBN Co. Ltd. (Commonwealth of Australia), 5.75%, 10/06/2028 (n) | | $ | 438,000 | 455,518 |
| NBN Co. Ltd. (Commonwealth of Australia), 4.375%, 3/15/2033 | | EUR | 356,000 | 420,815 |
| Ontario Teachers' Cadillac Fairview Properties, 2.5%, 10/15/2031 (n) | | $ | 317,000 | 256,131 |
| P3 Group S.à r.l., 1.625%, 1/26/2029 | | EUR | 280,000 | 271,372 |
| | | | | $2,554,664 |
| International Market Sovereign – 13.1% |
| Commonwealth of Australia, 3.25%, 6/21/2039 | | AUD | 3,049,000 | $ 1,858,271 |
| Federal Republic of Germany, 2.6%, 8/15/2033 | | EUR | 520,000 | 602,727 |
| Government of Bermuda, 2.375%, 8/20/2030 (n) | | $ | 220,000 | 188,296 |
| Government of Bermuda, 5%, 7/15/2032 (n) | | | 716,000 | 710,272 |
| Government of Canada, 1.25%, 3/01/2027 | | CAD | 1,120,000 | 791,459 |
| Government of Canada, 1.25%, 6/01/2030 | | | 4,860,000 | 3,276,690 |
| Government of Canada, 2%, 6/01/2032 | | | 715,000 | 495,619 |
| Government of Japan, 2.4%, 6/20/2028 | | JPY | 218,000,000 | 1,698,297 |
| Government of Japan, 0.3%, 12/20/2039 | | | 536,000,000 | 3,326,431 |
| Government of Japan, 1.7%, 6/20/2044 | | | 370,350,000 | 2,754,143 |
| Government of Japan, 0.3%, 6/20/2046 | | | 139,700,000 | 765,824 |
| Government of Japan, 0.4%, 3/20/2050 | | | 272,500,000 | 1,436,249 |
| Government of New Zealand, 1.5%, 5/15/2031 | | NZD | 5,109,000 | 2,668,890 |
| Government of New Zealand, 3.5%, 4/14/2033 | | | 5,711,000 | 3,382,946 |
| Kingdom of Belgium, 3%, 6/22/2033 (n) | | EUR | 1,188,000 | 1,354,935 |
| Kingdom of Belgium, 0.4%, 6/22/2040 | | | 1,218,000 | 896,070 |
| Kingdom of Spain, 3.15%, 4/30/2033 | | | 2,742,000 | 3,077,139 |
| Kingdom of Spain, 3.9%, 7/30/2039 (n) | | | 2,363,000 | 2,762,861 |
| Kingdom of Spain, 1%, 10/31/2050 | | | 503,000 | 313,348 |
| Republic of Austria, 2.9%, 2/20/2033 (n) | | | 748,000 | 846,399 |
| Republic of Italy, 0.5%, 7/15/2028 | | | 1,384,000 | 1,371,597 |
| Republic of Italy, 4.1%, 2/01/2029 | | | 5,410,000 | 6,262,389 |
| United Kingdom Treasury, 0.375%, 10/22/2030 | | GBP | 8,336,000 | 8,706,202 |
| United Kingdom Treasury, 1.75%, 9/07/2037 | | | 432,000 | 427,083 |
| United Kingdom Treasury, 1.25%, 10/22/2041 | | | 505,000 | 417,825 |
| | | | | $50,391,962 |
| Local Authorities – 0.0% |
| Province of British Columbia, 2.95%, 6/18/2050 | | CAD | 300,000 | $ 188,085 |
| Machinery & Tools – 0.2% |
| Ashtead Capital, Inc., 5.95%, 10/15/2033 (n) | | $ | 495,000 | $ 504,306 |
| CNH Industrial Capital LLC, 5.5%, 1/12/2029 | | | 406,000 | 418,420 |
| | | | | $922,726 |
| Major Banks – 3.1% |
| Banco BPM S.p.A, 4.625%, 11/29/2027 | | EUR | 240,000 | $ 272,917 |
| Banco de Sabadell S.A., 9.375% to 1/18/2029, FLR (EUR Swap Rate - 5yr. + 6.83%) to 4/18/2172 | | | 200,000 | 235,724 |
| Bank of America Corp., 5.202% to 4/25/2028, FLR (SOFR - 1 day + 1.63%) to 4/25/2029 | | $ | 467,000 | 469,889 |
| Bank of America Corp., 2.687% to 4/22/2031, FLR (SOFR - 1 day + 1.32%) to 4/22/2032 | | | 394,000 | 332,706 |
| BNP Paribas, 4.75%, 11/13/2032 | | EUR | 500,000 | 585,173 |
| BNP Paribas S.A., 5.97%, 3/23/2172 | | $ | 930,000 | 920,700 |
| Capital One Financial Corp., 6.377% to 6/08/2033, FLR (SOFR - 1 day + 2.860%) to 6/08/2034 | | | 274,000 | 282,000 |
| Commonwealth Bank of Australia, 2.688%, 3/11/2031 (n) | | | 735,000 | 604,371 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Major Banks – continued |
| Credit Agricole S.A., 6.316% to 10/03/2028, FLR (SOFR - 1 day + 1.86%) to 10/02/2029 (n) | | $ | 455,000 | $ 476,549 |
| Goldman Sachs Group, Inc., 2.383% to 7/21/2031, FLR (SOFR - 1 day + 1.248%) to 7/21/2032 | | | 212,000 | 174,185 |
| Goldman Sachs Group, Inc., 3.436% to 2/24/2042, FLR (SOFR - 1 day + 1.632%) to 2/24/2043 | | | 207,000 | 161,677 |
| HSBC Holdings PLC, 2.099% to 6/04/2025, FLR (SOFR - 1 day + 1.929%) to 6/04/2026 | | | 349,000 | 332,240 |
| HSBC Holdings PLC, 6.8%, 9/14/2031 | | GBP | 230,000 | 315,867 |
| HSBC Holdings PLC, 4.787% to 3/10/2031, FLR (EURIBOR - 3mo. + 1.55%) to 3/10/2032 | | EUR | 290,000 | 338,355 |
| HSBC Holdings PLC, 4.856% to 5/23/2032, FLR (EURIBOR - 3mo. + 1.942%) to 5/23/2033 | | | 260,000 | 304,455 |
| JPMorgan Chase & Co., 4.457%, 11/13/2031 | | | 530,000 | 616,520 |
| JPMorgan Chase & Co., 1.953% to 2/04/2031, FLR (SOFR - 1 day + 1.065%) to 2/04/2032 | | $ | 469,000 | 381,248 |
| JPMorgan Chase & Co., 3.109% to 4/22/2050, FLR (SOFR - 1 day + 2.44%) to 4/22/2051 | | | 611,000 | 439,037 |
| Lloyds Banking Group PLC, 4.75% to 9/21/2030, FLR (EUR Swap Rate - 1yr. + 1.6%) to 9/21/2031 | | EUR | 250,000 | 291,531 |
| mBank S.A., 8.375% to 9/11/2026, FLR (EURIBOR - 3mo. + 4.901%) to 9/11/2027 | | | 300,000 | 348,607 |
| Morgan Stanley, 3.125%, 7/27/2026 | | $ | 555,000 | 531,441 |
| Morgan Stanley, 3.622% to 4/01/2030, FLR (SOFR - 1 day + 3.12%) to 4/01/2031 | | | 262,000 | 241,361 |
| Morgan Stanley, 5.424% to 7/21/2033, FLR (SOFR - 1 day + 1.88%) to 7/21/2034 | | | 189,000 | 191,812 |
| Société Générale S.A., 5.625%, 6/02/2033 | | EUR | 200,000 | 235,311 |
| Toronto-Dominion Bank, 4.108%, 6/08/2027 | | $ | 328,000 | 322,162 |
| UBS Group AG, 2.746% to 2/11/2032, FLR (CMT - 1yr. + 1.1%) to 2/11/2033 (n) | | | 850,000 | 697,191 |
| UBS Group AG, 9.25% to 11/13/2028, FLR (CMT - 5yr. + 4.745%) to 12/31/2099 (n) | | | 231,000 | 249,197 |
| Unicaja Banco S.A., 1% to 12/01/2025, FLR (EUR ICE Swap Rate - 1yr. + 1.15%) to 12/01/2026 | | EUR | 100,000 | 104,149 |
| UniCredit S.p.A., 2.569% to 9/22/2025, FLR (CMT - 1yr. + 2.3%) to 9/22/2026 (n) | | $ | 590,000 | 554,626 |
| UniCredit S.p.A., 4.6%, 2/14/2030 | | EUR | 430,000 | 495,006 |
| Wells Fargo & Co., 3.35% to 3/02/2032, FLR (SOFR - 1 day + 1.5%) to 3/02/2033 | | $ | 358,000 | 312,683 |
| | | | | $11,818,690 |
| Medical & Health Technology & Services – 0.6% |
| CVS Health Corp., 5.625%, 2/21/2053 | | $ | 235,000 | $ 238,197 |
| HCA, Inc., 5.25%, 6/15/2026 | | | 214,000 | 215,043 |
| HCA, Inc., 5.125%, 6/15/2039 | | | 177,000 | 168,665 |
| IQVIA, Inc., 6.25%, 2/01/2029 (n) | | | 270,000 | 281,866 |
| New York Society for the Relief of the Ruptured & Crippled, 2.667%, 10/01/2050 | | | 650,000 | 404,637 |
| ProMedica Toledo Hospital, “B”, AGM, 6.015%, 11/15/2048 | | | 309,000 | 327,514 |
| Thermo Fisher Scientific (Finance I) B.V., 2%, 10/18/2051 | | EUR | 360,000 | 284,026 |
| Thermo Fisher Scientific, Inc., 4.977%, 8/10/2030 | | $ | 228,000 | 233,576 |
| | | | | $2,153,524 |
| Metals & Mining – 0.2% |
| Anglo American Capital PLC, 5.625%, 4/01/2030 (n) | | $ | 326,000 | $ 330,885 |
| Glencore Funding LLC, 2.85%, 4/27/2031 (n) | | | 392,000 | 338,022 |
| | | | | $668,907 |
| Midstream – 0.7% |
| Columbia Pipelines Operating Co. LLC, 5.927%, 8/15/2030 (n) | | $ | 316,000 | $ 326,749 |
| Columbia Pipelines Operating Co. LLC, 6.036%, 11/15/2033 (n) | | | 208,000 | 217,832 |
| Enbridge, Inc., 5.7%, 3/08/2033 | | | 182,000 | 189,170 |
| Enbridge, Inc., 8.5% to 1/15/2034, FLR (CMT - 5yr. + 4.431%) to 1/15/2054, FLR (CMT - 5yr. + 5.181%) to 1/15/2084 | | | 344,000 | 365,894 |
| Energy Transfer LP, 5.55%, 2/15/2028 | | | 178,000 | 181,578 |
| Energy Transfer LP, 7.125% to 5/15/2030, FLR (CMT - 5yr. + 5.306%) to 5/15/2171 | | | 306,000 | 281,972 |
| Galaxy Pipeline Assets Bidco Ltd., 2.16%, 3/31/2034 (n) | | | 465,493 | 403,630 |
| Targa Resources Corp., 4.2%, 2/01/2033 | | | 136,000 | 125,043 |
| Targa Resources Corp., 4.95%, 4/15/2052 | | | 275,000 | 241,256 |
| Venture Global Calcasieu Pass LLC, 4.125%, 8/15/2031 (n) | | | 363,000 | 319,805 |
| Venture Global LNG, Inc., 9.5%, 2/01/2029 (n) | | | 117,000 | 123,806 |
| | | | | $2,776,735 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Mortgage-Backed – 7.2% | |
| Fannie Mae, 4.5%, 3/01/2025 - 2/01/2046 | | $ | 2,299,646 | $ 2,287,647 |
| Fannie Mae, 5%, 3/01/2036 - 8/01/2040 | | | 750,486 | 761,458 |
| Fannie Mae, 5.5%, 11/01/2036 - 4/01/2037 | | | 62,923 | 64,798 |
| Fannie Mae, 6%, 9/01/2037 - 6/01/2038 | | | 102,020 | 106,373 |
| Fannie Mae, 4%, 11/01/2040 - 12/01/2040 | | | 539,894 | 523,789 |
| Fannie Mae, 3.5%, 5/01/2043 - 12/01/2046 | | | 1,231,893 | 1,151,691 |
| Fannie Mae, UMBS, 2%, 10/01/2036 - 2/01/2052 | | | 1,608,298 | 1,368,376 |
| Fannie Mae, UMBS, 2.5%, 1/01/2050 - 4/01/2052 | | | 1,820,480 | 1,555,483 |
| Fannie Mae, UMBS, 3%, 12/01/2051 - 7/01/2052 | | | 277,355 | 246,737 |
| Fannie Mae, UMBS, 6%, 12/01/2052 - 11/01/2053 | | | 563,950 | 572,750 |
| Fannie Mae, UMBS, 5.5%, 11/01/2053 | | | 74,930 | 75,258 |
| Freddie Mac, 4%, 7/01/2025 | | | 9,586 | 9,447 |
| Freddie Mac, 1.366%, 3/25/2027 (i) | | | 809,000 | 31,544 |
| Freddie Mac, 3.286%, 11/25/2027 | | | 1,303,000 | 1,251,488 |
| Freddie Mac, 3.9%, 4/25/2028 | | | 400,000 | 392,509 |
| Freddie Mac, 5%, 11/25/2028 - 7/01/2041 | | | 771,294 | 789,948 |
| Freddie Mac, 5.975%, 3/25/2029 | | | 370,173 | 369,806 |
| Freddie Mac, 5.965%, 7/25/2029 - 9/25/2029 | | | 1,159,106 | 1,157,251 |
| Freddie Mac, 1.799%, 4/25/2030 (i) | | | 1,420,926 | 135,904 |
| Freddie Mac, 1.868%, 4/25/2030 (i) | | | 1,365,340 | 131,481 |
| Freddie Mac, 1.665%, 5/25/2030 (i) | | | 1,747,943 | 155,785 |
| Freddie Mac, 1.797%, 5/25/2030 (i) | | | 3,920,368 | 370,408 |
| Freddie Mac, 1.341%, 6/25/2030 (i) | | | 1,615,349 | 117,542 |
| Freddie Mac, 1.599%, 8/25/2030 (i) | | | 1,436,842 | 126,950 |
| Freddie Mac, 1.169%, 9/25/2030 (i) | | | 905,456 | 59,207 |
| Freddie Mac, 1.08%, 11/25/2030 (i) | | | 1,823,916 | 113,634 |
| Freddie Mac, 4.94%, 11/25/2030 | | | 480,572 | 494,413 |
| Freddie Mac, 0.327%, 1/25/2031 (i) | | | 6,711,113 | 118,481 |
| Freddie Mac, 0.514%, 3/25/2031 (i) | | | 8,123,358 | 236,417 |
| Freddie Mac, 0.937%, 7/25/2031 (i) | | | 1,499,257 | 87,531 |
| Freddie Mac, 0.536%, 9/25/2031 (i) | | | 6,201,367 | 207,665 |
| Freddie Mac, 0.855%, 9/25/2031 (i) | | | 1,902,494 | 100,968 |
| Freddie Mac, 0.568%, 12/25/2031 (i) | | | 1,517,361 | 54,732 |
| Freddie Mac, 5.5%, 5/01/2034 - 7/01/2037 | | | 15,491 | 15,923 |
| Freddie Mac, 4.5%, 12/01/2039 - 5/01/2042 | | | 441,009 | 440,987 |
| Freddie Mac Multi-Family Structured Pass-Through Certificates K-511, “A2”, 4.86%, 10/25/2028 | | | 473,489 | 483,404 |
| Freddie Mac, UMBS, 2%, 8/01/2037 - 2/01/2052 | | | 2,178,945 | 1,786,701 |
| Freddie Mac, UMBS, 3.5%, 1/01/2047 - 11/01/2049 | | | 743,178 | 692,747 |
| Freddie Mac, UMBS, 3%, 6/01/2050 - 6/01/2053 | | | 616,353 | 545,839 |
| Freddie Mac, UMBS, 2.5%, 10/01/2051 - 6/01/2052 | | | 1,449,493 | 1,233,978 |
| Freddie Mac, UMBS, 4%, 5/01/2052 | | | 45,197 | 43,143 |
| Freddie Mac, UMBS, 6%, 11/01/2052 | | | 77,978 | 79,239 |
| Freddie Mac, UMBS, 6.5%, 8/01/2053 | | | 100,001 | 102,475 |
| Ginnie Mae, 5%, 5/15/2040 - 4/20/2053 | | | 98,049 | 97,757 |
| Ginnie Mae, 3.5%, 6/20/2043 | | | 404,371 | 384,203 |
| Ginnie Mae, 2.5%, 8/20/2051 - 8/20/2052 | | | 1,648,051 | 1,441,138 |
| Ginnie Mae, 2%, 1/20/2052 - 5/20/2052 | | | 1,182,207 | 1,000,240 |
| Ginnie Mae, 3%, 6/20/2052 - 11/20/2052 | | | 322,766 | 292,127 |
| Ginnie Mae, 4%, 8/20/2052 | | | 140,912 | 134,453 |
| Ginnie Mae, 5.5%, 2/20/2053 - 4/20/2053 | | | 242,229 | 244,077 |
| Ginnie Mae, TBA, 3%, 1/15/2054 | | | 100,000 | 90,531 |
| Ginnie Mae, TBA, 6%, 1/15/2054 | | | 175,000 | 177,933 |
| Ginnie Mae, TBA, 6.5%, 1/15/2054 | | | 200,000 | 204,727 |
| UMBS, TBA, 3%, 1/16/2054 | | | 1,050,000 | 928,717 |
| UMBS, TBA, 2%, 1/25/2054 | | | 1,425,000 | 1,164,492 |
| UMBS, TBA, 3.5%, 1/25/2054 | | | 1,150,000 | 1,054,945 |
| | | | | $27,867,247 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Municipals – 0.8% |
| Iowa Student Loan Liquidity Corp. Rev., Taxable, “A”, 5.08%, 12/01/2039 | | $ | 265,000 | $ 257,260 |
| Massachusetts Educational Financing Authority, Education Loan Rev., Taxable, Issue M, “A”, 2.641%, 7/01/2037 | | | 670,000 | 612,694 |
| Massachusetts Educational Financing Authority, Education Loan Rev., Taxable, Issue M, “A”, 4.949%, 7/01/2038 | | | 660,000 | 636,838 |
| Massachusetts Housing Finance Agency, Single Family Housing Rev., Taxable, “226”, 5.562%, 12/01/2052 | | | 510,000 | 513,684 |
| Michigan Finance Authority Hospital Rev., Taxable (Trinity Health Credit Group), 3.384%, 12/01/2040 | | | 480,000 | 392,696 |
| Minnesota Housing Finance Agency, Residential Housing, Taxable, “G”, 4.337%, 1/01/2047 | | | 445,000 | 432,022 |
| Oklahoma Development Finance Authority, Health System Rev., Taxable (OU Medicine Project), “C”, 5.45%, 8/15/2028 | | | 275,000 | 246,841 |
| | | | | $3,092,035 |
| Natural Gas - Distribution – 0.1% |
| ENGIE Energía Chile S.A., 3.875%, 12/06/2033 | | EUR | 100,000 | $ 114,135 |
| ENGIE S.A., 4.5%, 9/06/2042 | | | 200,000 | 237,517 |
| | | | | $351,652 |
| Natural Gas - Pipeline – 0.3% |
| APA Infrastructure Ltd., 0.75%, 3/15/2029 | | EUR | 340,000 | $ 326,406 |
| APA Infrastructure Ltd., 2.5%, 3/15/2036 | | GBP | 770,000 | 723,801 |
| APA Infrastructure Ltd., 7.125% to 2/09/2029, FLR (EUR ICE Swap Rate - 5yr. + 4.098%) to 2/09/2034, FLR (EUR ICE Swap Rate - 5yr. + 4.348%) to 2/09/2049, FLR (EUR ICE Swap Rate - 5yr. + 5.098%) to 11/08/2083 | | EUR | 230,000 | 266,604 |
| | | | | $1,316,811 |
| Oils – 0.1% |
| Neste Oyj, 3.875%, 5/21/2031 | | EUR | 110,000 | $ 125,961 |
| Puma International Financing S.A., 5%, 1/24/2026 | | $ | 223,000 | 212,073 |
| | | | | $338,034 |
| Other Banks & Diversified Financials – 2.2% |
| Abanca Corp. Bancaria S.A., 5.875% to 4/02/2029, FLR (EUR Swap Rate - 1yr. + 2.6%) to 4/02/2030 | | EUR | 300,000 | $ 351,836 |
| ABANCA Corp. Bancaria S.A., 8.375% to 9/23/2028, FLR (EUR ICE Swap Rate - 5yr. + 5.245%) to 9/23/2033 | | | 400,000 | 474,699 |
| AIB Group PLC, 6.608% to 9/13/2028, FLR (SOFR - 1 day + 2.33%) to 9/13/2029 (n) | | $ | 400,000 | 421,381 |
| AIB Group PLC, 5.25%, 10/23/2031 | | EUR | 300,000 | 357,692 |
| Alpha Bank, 4.25%, 2/13/2030 | | | 250,000 | 269,088 |
| BBVA Bancomer S.A., 8.45% to 6/29/2033, FLR (CMT - 5yr. + 4.661%) to 6/28/2038 (n) | | $ | 425,000 | 453,080 |
| BPCE S.A., 2.277% to 1/20/2031, FLR (SOFR - 1 day + 1.312%) to 1/20/2032 (n) | | | 550,000 | 440,560 |
| BPCE S.A., 4.75% to 6/14/2033, FLR (EURIBOR - 3mo. + 1.83%) to 6/14/2034 | | EUR | 200,000 | 234,756 |
| CaixaBank S.A., 5% to 7/19/2028, FLR (EURIBOR - 3mo. + 1.65%) to 7/19/2029 | | | 300,000 | 346,194 |
| CaixaBank S.A., 4.25%, 9/06/2030 | | | 300,000 | 343,737 |
| CaixaBank S.A., 8.25% to 9/13/2029, FLR (EUR ICE Swap Rate - 5yr. + 5.142%) to 6/13/2172 | | | 400,000 | 466,858 |
| Deutsche Bank AG, 6.125% to 12/12/2029, FLR (SONIA + 2.621%) to 12/12/2030 | | GBP | 300,000 | 387,154 |
| Deutsche Bank AG, 4% to 6/24/2027, FLR (EUR ICE Swap Rate - 5yr. + 3.3%) to 6/24/2032 | | EUR | 300,000 | 318,103 |
| Deutsche Bank AG, 10% to 4/30/2028, FLR (EUR ICE Swap Rate - 1yr. + 6.94%) to 11/14/2171 | | | 200,000 | 240,490 |
| Groupe BPCE S.A., 4.5%, 3/15/2025 (n) | | $ | 287,000 | 281,504 |
| Intesa Sanpaolo S.p.A., 5.125%, 8/29/2031 | | EUR | 290,000 | 341,210 |
| Intesa Sanpaolo S.p.A., 7.2%, 11/28/2033 (n) | | $ | 645,000 | 687,579 |
| KBC Group N.V., 4.25%, 11/28/2029 | | EUR | 300,000 | 340,055 |
| Macquarie Group Ltd., 4.747%, 1/23/2030 | | | 195,000 | 226,325 |
| Macquarie Group Ltd., 6.255% to 12/07/2033, FLR (SOFR - 1 day + 2.303%) to 12/07/2034 (n) | | $ | 253,000 | 264,181 |
| Manufacturers and Traders Trust Co., 4.7%, 1/27/2028 | | | 366,000 | 355,563 |
| Virgin Money UK PLC, 7.625%, 8/23/2029 | | GBP | 170,000 | 230,358 |
| Virgin Money UK PLC, 11% to 6/08/2029, FLR (GBP Government Yield - 5yr. + 6.993%) to 12/30/2099 | | | 400,000 | 520,647 |
| | | | | $8,353,050 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Pharmaceuticals – 0.4% |
| Bayer US Finance LLC, 6.375%, 11/21/2030 (n) | | $ | 609,000 | $ 626,575 |
| Pfizer Investment Enterprises Pte. Ltd., 4.75%, 5/19/2033 | | | 375,000 | 375,842 |
| Roche Holdings, Inc., 5.489%, 11/13/2030 (n) | | | 565,000 | 596,563 |
| | | | | $1,598,980 |
| Pollution Control – 0.2% |
| GFL Environmental, Inc., 3.5%, 9/01/2028 (n) | | $ | 182,000 | $ 168,179 |
| GFL Environmental, Inc., 6.75%, 1/15/2031 (n) | | | 167,000 | 172,057 |
| Waste Management, Inc., 4.625%, 2/15/2033 | | | 382,000 | 383,198 |
| | | | | $723,434 |
| Precious Metals & Minerals – 0.1% |
| Northern Star Resources Ltd. Co., 6.125%, 4/11/2033 (n) | | $ | 335,000 | $ 336,567 |
| Real Estate - Office – 0.2% |
| Boston Properties LP, REIT, 3.65%, 2/01/2026 | | $ | 307,000 | $ 295,480 |
| Corporate Office Property LP, REIT, 2.25%, 3/15/2026 | | | 356,000 | 331,915 |
| Corporate Office Property LP, REIT, 2%, 1/15/2029 | | | 237,000 | 197,371 |
| Corporate Office Property LP, REIT, 2.75%, 4/15/2031 | | | 107,000 | 86,487 |
| | | | | $911,253 |
| Real Estate - Other – 0.3% |
| EPR Properties, REIT, 3.6%, 11/15/2031 | | $ | 405,000 | $ 335,894 |
| Extra Space Storage LP, 5.5%, 7/01/2030 | | | 367,000 | 375,311 |
| LXP Industrial Trust, 2.7%, 9/15/2030 | | | 380,000 | 314,735 |
| | | | | $1,025,940 |
| Real Estate - Retail – 0.2% |
| STORE Capital Corp., REIT, 2.75%, 11/18/2030 | | $ | 501,000 | $ 391,166 |
| WEA Finance LLC, 2.875%, 1/15/2027 (n) | | | 470,000 | 418,101 |
| | | | | $809,267 |
| Restaurants – 0.1% |
| McDonald's Corp., 3.875%, 2/20/2031 | | EUR | 280,000 | $ 320,991 |
| Retailers – 0.2% |
| AutoZone, Inc., 4.75%, 8/01/2032 | | $ | 238,000 | $ 235,615 |
| B&M EuropeanValue Retail S.A., 8.125%, 11/15/2030 | | GBP | 100,000 | 135,432 |
| Home Depot, Inc., 4.875%, 2/15/2044 | | $ | 159,000 | 157,323 |
| Home Depot, Inc., 3.625%, 4/15/2052 | | | 177,000 | 143,428 |
| | | | | $671,798 |
| Specialty Chemicals – 0.1% |
| Covestro AG, 1.375%, 6/12/2030 | | EUR | 370,000 | $ 366,993 |
| International Flavors & Fragrances, Inc., 1.832%, 10/15/2027 (n) | | $ | 241,000 | 211,184 |
| | | | | $578,177 |
| Specialty Stores – 0.1% |
| DICK'S Sporting Goods, 3.15%, 1/15/2032 | | $ | 309,000 | $ 263,229 |
| Supranational – 1.1% |
| European Financial Stability Facility, 3%, 9/04/2034 | | EUR | 1,231,000 | $ 1,391,673 |
| European Union, 3.25%, 7/04/2034 | | | 1,123,000 | 1,299,529 |
| European Union, 2.625%, 2/04/2048 | | | 620,000 | 636,606 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Supranational – continued |
| European Union, 3%, 3/04/2053 | | EUR | 910,000 | $ 985,527 |
| | | | | $4,313,335 |
| Telecommunications - Wireless – 0.7% |
| Cellnex Finance Co. S.A., 2%, 2/15/2033 | | EUR | 400,000 | $ 375,948 |
| Crown Castle, Inc., REIT, 3.7%, 6/15/2026 | | $ | 275,000 | 265,371 |
| Rogers Communications, Inc., 3.8%, 3/15/2032 | | | 413,000 | 380,052 |
| TDF Infrastructure S.A.S., 5.625%, 7/21/2028 | | EUR | 200,000 | 231,531 |
| T-Mobile USA, Inc., 3.875%, 4/15/2030 | | $ | 483,000 | 458,030 |
| T-Mobile USA, Inc., 5.75%, 1/15/2034 | | | 197,000 | 208,946 |
| Vodafone Group PLC, 3.375%, 8/08/2049 | | GBP | 360,000 | 330,525 |
| Vodafone Group PLC, 5.625%, 2/10/2053 | | $ | 250,000 | 252,078 |
| | | | | $2,502,481 |
| Telephone Services – 0.2% |
| Deutsche Telekom AG, 1.375%, 7/05/2034 | | EUR | 460,000 | $ 438,771 |
| TELUS Corp., 2.85%, 11/13/2031 | | CAD | 672,000 | 446,759 |
| | | | | $885,530 |
| Tobacco – 0.1% |
| B.A.T. International Finance PLC, 2.25%, 1/16/2030 | | EUR | 270,000 | $ 264,953 |
| Philip Morris International, Inc., 5.125%, 11/17/2027 | | $ | 276,000 | 280,917 |
| | | | | $545,870 |
| Transportation - Services – 0.8% |
| Aeroporti di Roma S.p.A., 4.875%, 7/10/2033 | | EUR | 370,000 | $ 429,748 |
| Autostrade per l’Italia S.p.A., 5.125%, 6/14/2033 | | | 170,000 | 196,204 |
| Autostrade per l'Italia S.p.A., 4.75%, 1/24/2031 | | | 225,000 | 255,907 |
| Element Fleet Management Corp., 6.271%, 6/26/2026 (n) | | $ | 256,000 | 260,672 |
| Element Fleet Management Corp., 6.319%, 12/04/2028 (n) | | | 451,000 | 465,778 |
| Holding d'Infrastructures de Transport, 1.475%, 1/18/2031 | | EUR | 300,000 | 283,660 |
| Transurban Finance Co. Pty Ltd., 4.225%, 4/26/2033 | | | 180,000 | 209,155 |
| Triton International Ltd., 3.15%, 6/15/2031 (n) | | $ | 440,000 | 350,030 |
| United Parcel Service, 5.05%, 3/03/2053 | | | 448,000 | 464,076 |
| | | | | $2,915,230 |
| U.S. Government Agencies and Equivalents – 0.0% |
| Small Business Administration, 5.31%, 5/01/2027 | | $ | 7,986 | $ 7,880 |
| U.S. Treasury Obligations – 1.0% |
| U.S. Treasury Bonds, 3.875%, 5/15/2043 (f) | | $ | 2,290,000 | $ 2,183,014 |
| U.S. Treasury Bonds, 4.375%, 8/15/2043 | | | 277,000 | 282,756 |
| U.S. Treasury Bonds, 3.625%, 5/15/2053 (f) | | | 513,000 | 474,285 |
| U.S. Treasury Notes, 4.875%, 10/31/2030 (f) | | | 1,037,000 | 1,096,790 |
| | | | | $4,036,845 |
| Utilities - Electric Power – 1.9% |
| American Electric Power Co., Inc., 5.699%, 8/15/2025 | | $ | 175,000 | $ 176,149 |
| American Electric Power Co., Inc., 5.625%, 3/01/2033 | | | 173,000 | 180,230 |
| American Transmission Systems, Inc., 2.65%, 1/15/2032 (n) | | | 104,000 | 87,988 |
| Berkshire Hathaway Energy Co., 5.15%, 11/15/2043 | | | 92,000 | 90,522 |
| Berkshire Hathaway Energy Co., 4.6%, 5/01/2053 | | | 76,000 | 67,654 |
| Bruce Power LP, 2.68%, 12/21/2028 | | CAD | 915,000 | 638,708 |
| Duke Energy Florida LLC, 6.2%, 11/15/2053 | | $ | 244,000 | 279,037 |
| E.ON International Finance B.V., 5.875%, 10/30/2037 | | GBP | 400,000 | 544,508 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Utilities - Electric Power – continued |
| EDP Servicios Financieros Espana S.A., 4.375%, 4/04/2032 | | EUR | 114,000 | $ 134,115 |
| Enel Americas S.A., 4%, 10/25/2026 | | $ | 855,000 | 831,925 |
| Enel Finance International N.V., 2.25%, 7/12/2031 (n) | | | 630,000 | 511,826 |
| Enel Finance International N.V., 4.5%, 2/20/2043 | | EUR | 140,000 | 159,048 |
| EPH Financing International A.S., 6.651%, 11/13/2028 | | | 486,000 | 544,482 |
| Georgia Power Co., 4.95%, 5/17/2033 | | $ | 473,000 | 476,816 |
| Jersey Central Power & Light Co., 2.75%, 3/01/2032 (n) | | | 184,000 | 155,292 |
| Mercury Chile Holdco LLC, 6.5%, 1/24/2027 | | | 422,000 | 393,188 |
| National Grid Electricity Transmission PLC, 2%, 4/17/2040 | | GBP | 350,000 | 294,181 |
| National Grid PLC, 4.275%, 1/16/2035 | | EUR | 230,000 | 262,487 |
| NextEra Energy Capital Holdings, Inc., 6.051%, 3/01/2025 | | $ | 136,000 | 137,211 |
| NextEra Energy Capital Holdings, Inc., 5.749%, 9/01/2025 | | | 201,000 | 202,902 |
| Pacific Gas & Electric Co., 6.1%, 1/15/2029 | | | 259,000 | 268,012 |
| Pacific Gas & Electric Co., 6.4%, 6/15/2033 | | | 114,000 | 119,953 |
| PPL Electric Utilities Corp, 1st Mortgage, 5.25%, 5/15/2053 | | | 376,000 | 387,517 |
| SSE PLC, 4%, 9/05/2031 | | EUR | 110,000 | 126,897 |
| Xcel Energy, Inc., 4.6%, 6/01/2032 | | $ | 213,000 | 207,646 |
| | | | | $7,278,294 |
| Utilities - Gas – 0.3% |
| EP Infrastructure A.S., 1.698%, 7/30/2026 | | EUR | 520,000 | $ 513,657 |
| EP Infrastructure A.S., 2.045%, 10/09/2028 | | | 680,000 | 621,027 |
| | | | | $1,134,684 |
| Utilities - Other – 0.1% |
| Aegea Finance S.à r.l., 9%, 1/20/2031 (n) | | $ | 413,000 | $ 438,798 |
| Total Bonds (Identified Cost, $239,538,204) | | $241,307,220 |
| Common Stocks – 33.9% |
| Aerospace & Defense – 0.7% | |
| General Dynamics Corp. (f) | | 5,472 | $ 1,420,914 |
| Honeywell International, Inc. (f) | | 2,984 | 625,775 |
| L3Harris Technologies, Inc. | | 2,729 | 574,782 |
| | | | | $2,621,471 |
| Alcoholic Beverages – 0.7% | |
| Diageo PLC | | 29,183 | $ 1,062,378 |
| Heineken N.V. | | 5,600 | 568,384 |
| Kirin Holdings Co. Ltd. (l) | | 30,900 | 452,762 |
| Pernod Ricard S.A. | | 2,714 | 478,630 |
| | | | | $2,562,154 |
| Apparel Manufacturers – 0.2% | |
| Compagnie Financiere Richemont S.A. | | 5,241 | $ 721,296 |
| Automotive – 0.8% | |
| Aptiv PLC (a) | | 9,767 | $ 876,295 |
| Bridgestone Corp. (l) | | 8,000 | 331,347 |
| Lear Corp. | | 3,943 | 556,791 |
| LKQ Corp. (f) | | 18,759 | 896,493 |
| Stellantis N.V. | | 15,145 | 353,614 |
| Tofas Turk Otomobil Fabrikasi A.S. | | 11,934 | 85,044 |
| | | | | $3,099,584 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Biotechnology – 0.0% | |
| Biogen, Inc. (a) | | 414 | $ 107,131 |
| Broadcasting – 0.5% | |
| Omnicom Group, Inc. (f) | | 19,924 | $ 1,723,625 |
| Brokerage & Asset Managers – 1.0% | |
| Bank of New York Mellon Corp. | | 16,013 | $ 833,477 |
| Cboe Global Markets, Inc. | | 3,012 | 537,823 |
| Charles Schwab Corp. (f) | | 29,567 | 2,034,209 |
| CME Group, Inc. | | 2,016 | 424,570 |
| | | | | $3,830,079 |
| Business Services – 1.2% | |
| Accenture PLC, “A” | | 2,429 | $ 852,360 |
| CGI, Inc. (a) | | 4,757 | 509,608 |
| Experian PLC | | 12,816 | 523,076 |
| Fidelity National Information Services, Inc. | | 7,079 | 425,236 |
| Fiserv, Inc. (a)(f) | | 6,162 | 818,560 |
| SCSK Corp. | | 6,200 | 122,945 |
| Secom Co. Ltd. | | 12,900 | 929,074 |
| TriNet Group, Inc. (a) | | 1,356 | 161,269 |
| Verisk Analytics, Inc., “A” | | 767 | 183,206 |
| | | | | $4,525,334 |
| Cable TV – 0.7% | |
| Comcast Corp., “A” (f) | | 63,593 | $ 2,788,553 |
| Chemicals – 0.3% | |
| Nutrien Ltd. | | 1,406 | $ 79,211 |
| PPG Industries, Inc. | | 6,820 | 1,019,931 |
| | | | | $1,099,142 |
| Computer Software – 0.6% | |
| Dun & Bradstreet Holdings, Inc. | | 63,048 | $ 737,662 |
| Microsoft Corp. (f) | | 4,357 | 1,638,406 |
| | | | | $2,376,068 |
| Computer Software - Systems – 1.6% | |
| Amadeus IT Group S.A. | | 6,278 | $ 449,657 |
| Cap Gemini S.A. | | 4,706 | 980,592 |
| Fujitsu Ltd. | | 5,700 | 860,053 |
| Hitachi Ltd. | | 15,800 | 1,139,617 |
| Hon Hai Precision Industry Co. Ltd. | | 238,000 | 810,381 |
| Lenovo Group Ltd. | | 256,000 | 358,010 |
| Samsung Electronics Co. Ltd. | | 24,032 | 1,461,624 |
| Seagate Technology Holdings PLC | | 1,399 | 119,433 |
| | | | | $6,179,367 |
| Construction – 0.9% | |
| Anhui Conch Cement Co. Ltd. | | 113,000 | $ 261,064 |
| Compagnie de Saint-Gobain S.A. | | 5,257 | 386,859 |
| Heidelberg Materials AG | | 5,433 | 485,459 |
| Masco Corp. | | 18,271 | 1,223,792 |
| Stanley Black & Decker, Inc. | | 5,922 | 580,948 |
| Techtronic Industries Co. Ltd. | | 31,000 | 369,411 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Construction – continued | |
| Zhejiang Supor Co. Ltd., “A” | | 15,600 | $ 116,601 |
| | | | | $3,424,134 |
| Consumer Products – 0.9% | |
| Colgate-Palmolive Co. (f) | | 9,971 | $ 794,789 |
| Kenvue, Inc. | | 32,851 | 707,282 |
| Kimberly-Clark Corp. (f) | | 9,634 | 1,170,627 |
| Procter & Gamble Co. | | 657 | 96,277 |
| Reckitt Benckiser Group PLC | | 10,739 | 741,915 |
| | | | | $3,510,890 |
| Electrical Equipment – 1.1% | |
| Johnson Controls International PLC | | 25,155 | $ 1,449,934 |
| Legrand S.A. | | 5,516 | 573,011 |
| Mitsubishi Electric Corp. | | 29,100 | 412,560 |
| Schneider Electric SE | | 8,428 | 1,691,298 |
| | | | | $4,126,803 |
| Electronics – 1.6% | |
| Analog Devices, Inc. | | 1,066 | $ 211,665 |
| Broadcom, Inc. | | 231 | 257,854 |
| Intel Corp. | | 23,101 | 1,160,825 |
| Kyocera Corp. | | 60,000 | 875,745 |
| Lam Research Corp. | | 657 | 514,602 |
| Novatek Microelectronics Corp. | | 18,000 | 303,221 |
| NVIDIA Corp. | | 439 | 217,401 |
| NXP Semiconductors N.V. | | 5,764 | 1,323,875 |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | 6,164 | 641,056 |
| Texas Instruments, Inc. (f) | | 4,356 | 742,524 |
| | | | | $6,248,768 |
| Energy - Independent – 1.2% | |
| ConocoPhillips (f) | | 13,803 | $ 1,602,114 |
| Hess Corp. | | 7,446 | 1,073,415 |
| Phillips 66 | | 9,410 | 1,252,848 |
| Pioneer Natural Resources Co. | | 1,532 | 344,516 |
| Valero Energy Corp. | | 3,829 | 497,770 |
| | | | | $4,770,663 |
| Energy - Integrated – 1.3% | |
| Eni S.p.A. | | 105,360 | $ 1,785,159 |
| Exxon Mobil Corp. (f) | | 1,968 | 196,761 |
| LUKOIL PJSC (a)(u) | | 1,414 | 0 |
| PetroChina Co. Ltd. | | 874,000 | 577,555 |
| Petroleo Brasileiro S.A., ADR | | 16,403 | 250,638 |
| Suncor Energy, Inc. | | 36,869 | 1,181,155 |
| TotalEnergies SE | | 16,388 | 1,114,438 |
| | | | | $5,105,706 |
| Engineering - Construction – 0.1% | |
| ACS Actividades de Construcción y Servicios S.A. | | 3,395 | $ 150,516 |
| Doosan Bobcat, Inc. | | 5,243 | 204,350 |
| | | | | $354,866 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Food & Beverages – 0.7% | |
| Archer Daniels Midland Co. | | 4,394 | $ 317,335 |
| Danone S.A. | | 10,593 | 686,212 |
| General Mills, Inc. (f) | | 16,010 | 1,042,891 |
| J.M. Smucker Co. | | 4,076 | 515,125 |
| | | | | $2,561,563 |
| Food & Drug Stores – 0.5% | |
| BIM Birlesik Magazalar A.S. | | 19,684 | $ 200,889 |
| Tesco PLC | | 418,085 | 1,548,110 |
| Wesfarmers Ltd. | | 4,095 | 159,172 |
| | | | | $1,908,171 |
| Forest & Paper Products – 0.1% | |
| Weyerhaeuser Co., REIT | | 8,144 | $ 283,167 |
| Gaming & Lodging – 0.0% | |
| Aristocrat Leisure Ltd. | | 4,386 | $ 122,004 |
| Health Maintenance Organizations – 0.6% | |
| Cigna Group (f) | | 7,788 | $ 2,332,117 |
| Insurance – 2.0% | |
| Aon PLC (s) | | 5,431 | $ 1,580,530 |
| China Pacific Insurance Co. Ltd. | | 40,200 | 81,136 |
| Chubb Ltd. | | 5,240 | 1,184,240 |
| DB Insurance Co. Ltd. (a) | | 1,806 | 117,138 |
| Equitable Holdings, Inc. | | 21,381 | 711,987 |
| Hartford Financial Services Group, Inc. | | 3,663 | 294,432 |
| Manulife Financial Corp. | | 62,589 | 1,383,047 |
| MetLife, Inc. (f) | | 7,515 | 496,967 |
| Samsung Fire & Marine Insurance Co. Ltd. (a) | | 2,709 | 552,482 |
| Travelers Cos., Inc. | | 691 | 131,629 |
| Willis Towers Watson PLC | | 4,211 | 1,015,693 |
| | | | | $7,549,281 |
| Internet – 0.3% | |
| Alphabet, Inc., “A” (a)(f) | | 8,076 | $ 1,128,136 |
| Machinery & Tools – 1.0% | |
| Eaton Corp. PLC | | 5,211 | $ 1,254,913 |
| Ingersoll Rand, Inc. | | 8,150 | 630,321 |
| Kubota Corp. | | 34,700 | 522,346 |
| Regal Rexnord Corp. | | 5,495 | 813,370 |
| Timken Co. | | 1,350 | 108,202 |
| Volvo Group | | 23,191 | 601,731 |
| | | | | $3,930,883 |
| Major Banks – 3.8% | |
| ABN AMRO Group N.V., GDR | | 53,453 | $ 801,938 |
| Bank of America Corp. | | 46,852 | 1,577,507 |
| BNP Paribas | | 31,487 | 2,175,633 |
| DBS Group Holdings Ltd. | | 44,200 | 1,118,941 |
| Erste Group Bank AG | | 4,333 | 175,695 |
| Goldman Sachs Group, Inc. | | 5,034 | 1,941,966 |
| JPMorgan Chase & Co. | | 10,598 | 1,802,720 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Major Banks – continued | |
| Mitsubishi UFJ Financial Group, Inc. | | 145,800 | $ 1,252,743 |
| NatWest Group PLC | | 439,041 | 1,227,814 |
| Regions Financial Corp. | | 8,977 | 173,974 |
| UBS Group AG | | 80,426 | 2,495,831 |
| | | | | $14,744,762 |
| Medical & Health Technology & Services – 0.3% | |
| ICON PLC (a) | | 1,827 | $ 517,169 |
| McKesson Corp. | | 1,483 | 686,599 |
| | | | | $1,203,768 |
| Medical Equipment – 0.5% | |
| Becton, Dickinson and Co. | | 3,364 | $ 820,244 |
| Boston Scientific Corp. (a)(f) | | 5,377 | 310,844 |
| Medtronic PLC | | 11,820 | 973,732 |
| | | | | $2,104,820 |
| Metals & Mining – 0.9% | |
| Fortescue Ltd. | | 7,024 | $ 138,904 |
| Glencore PLC | | 173,247 | 1,042,535 |
| PT United Tractors Tbk | | 30,700 | 45,112 |
| Rio Tinto PLC | | 21,754 | 1,619,913 |
| United States Steel Corp. | | 6,929 | 337,096 |
| Vale S.A. | | 20,000 | 317,853 |
| | | | | $3,501,413 |
| Other Banks & Diversified Financials – 0.8% | |
| China Construction Bank Corp. | | 349,000 | $ 207,831 |
| Julius Baer Group Ltd. | | 10,046 | 563,188 |
| KB Financial Group, Inc. | | 2,911 | 121,754 |
| M&T Bank Corp. | | 1,640 | 224,811 |
| Northern Trust Corp. | | 12,542 | 1,058,294 |
| Sberbank of Russia PJSC (a)(u) | | 137,348 | 0 |
| Truist Financial Corp. | | 22,019 | 812,941 |
| | | | | $2,988,819 |
| Pharmaceuticals – 2.8% | |
| AbbVie, Inc. | | 7,964 | $ 1,234,181 |
| Bayer AG | | 28,939 | 1,074,385 |
| Johnson & Johnson (f) | | 14,624 | 2,292,166 |
| Merck & Co., Inc. | | 1,586 | 172,906 |
| Novartis AG | | 6,144 | 619,988 |
| Organon & Co. (f) | | 43,283 | 624,141 |
| Pfizer, Inc. (f) | | 46,611 | 1,341,931 |
| Roche Holding AG | | 9,530 | 2,770,447 |
| Sanofi | | 7,255 | 718,902 |
| | | | | $10,849,047 |
| Printing & Publishing – 0.3% | |
| RELX PLC | | 13,879 | $ 548,824 |
| Wolters Kluwer N.V. | | 3,964 | 563,199 |
| | | | | $1,112,023 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Railroad & Shipping – 0.3% | |
| A.P. Moller-Maersk A/S | | 39 | $ 70,114 |
| Union Pacific Corp. | | 4,314 | 1,059,605 |
| | | | | $1,129,719 |
| Real Estate – 0.1% | |
| Brixmor Property Group, Inc., REIT | | 8,309 | $ 193,351 |
| Broadstone Net Lease, Inc., REIT | | 3,936 | 67,778 |
| NNN REIT, Inc. | | 4,513 | 194,510 |
| | | | | $455,639 |
| Restaurants – 0.2% | |
| Sodexo | | 4,632 | $ 509,407 |
| Texas Roadhouse, Inc. | | 1,719 | 210,113 |
| | | | | $719,520 |
| Specialty Chemicals – 0.3% | |
| Akzo Nobel N.V. | | 5,809 | $ 479,809 |
| Axalta Coating Systems Ltd. (a) | | 13,958 | 474,153 |
| Chemours Co. | | 3,870 | 122,060 |
| Nitto Denko Corp. | | 3,000 | 224,468 |
| | | | | $1,300,490 |
| Specialty Stores – 0.2% | |
| Home Depot, Inc. (f) | | 1,141 | $ 395,414 |
| Ross Stores, Inc. | | 1,629 | 225,437 |
| | | | | $620,851 |
| Telecommunications - Wireless – 0.7% | |
| KDDI Corp. | | 50,500 | $ 1,606,688 |
| T-Mobile USA, Inc. (f) | | 7,012 | 1,124,234 |
| | | | | $2,730,922 |
| Telephone Services – 0.2% | |
| Hellenic Telecommunications Organization S.A. | | 20,306 | $ 289,177 |
| Quebecor, Inc., “B” | | 13,397 | 318,685 |
| | | | | $607,862 |
| Tobacco – 0.6% | |
| British American Tobacco PLC | | 32,435 | $ 949,035 |
| Japan Tobacco, Inc. (l) | | 25,000 | 646,277 |
| Philip Morris International, Inc. (f) | | 8,890 | 836,371 |
| | | | | $2,431,683 |
| Utilities - Electric Power – 1.3% | |
| Duke Energy Corp. | | 6,197 | $ 601,357 |
| E.ON SE | | 63,103 | 846,400 |
| Edison International (f) | | 11,933 | 853,090 |
| Iberdrola S.A. | | 64,926 | 850,783 |
| National Grid PLC | | 60,486 | 815,702 |
| PG&E Corp. | | 51,900 | 935,757 |
| Vistra Corp. | | 4,508 | 173,648 |
| | | | | $5,076,737 |
| Total Common Stocks (Identified Cost, $89,194,696) | | $130,569,031 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Preferred Stocks – 0.5% |
| Consumer Products – 0.3% | | | | |
| Henkel AG & Co. KGaA | | 15,137 | $ 1,217,526 |
| Metals & Mining – 0.2% | | | | |
| Gerdau S.A. | | 106,640 | $ 521,609 |
| Total Preferred Stocks (Identified Cost, $1,417,748) | | $1,739,135 |
| Convertible Bonds – 0.0% |
| Utilities - Electric Power – 0.0% | |
| Pacific Gas and Electric Corp., 4.25%, 12/01/2027 (n) (Identified Cost, $97,000) | | $ | 97,000 | $ 101,656 |
| Investment Companies (h) – 2.8% |
| Money Market Funds – 2.8% | |
| MFS Institutional Money Market Portfolio, 5.42% (v) (Identified Cost, $10,844,551) | | | 10,844,443 | $ 10,846,612 |
| Underlying/Expiration Date/Exercise Price | Put/Call | Counterparty | Notional
Amount | Par Amount/
Number of
Contracts | |
| Purchased Options – 0.2% | |
| Market Index Securities – 0.2% | |
| iTraxx Europe Series 40 Index Credit Default Swap – Fund receives 5%, Fund pays notional amount upon a defined credit event of an index constituent – May 2024 @ 3.5% | Call | Merrill Lynch International | $ 11,662,801 | EUR 9,860,000 | $154,874 |
| iTraxx Europe Series 40 Index Credit Default Swap – Fund receives 5%, Fund pays notional amount upon a defined credit event of an index constituent – May 2024 @ 3.5% | Call | Barclays Bank PLC | 5,381,921 | 4,550,000 | 71,468 |
| iTraxx Europe Series 40 Index Credit Default Swap – Fund receives 5%, Fund pays notional amount upon a defined credit event of an index constituent – May 2024 @ 3.5% | Call | Merrill Lynch International | 21,941,678 | 18,550,000 | 84,460 |
| Euro Stoxx 50 Index – March 2025 @ EUR 3,400 | Put | Goldman Sachs International | 6,838,595 | 137 | 100,727 |
| S&P 500 Index – December 2024 @ $3,600 | Put | Merrill Lynch International | 4,292,847 | 9 | 41,121 |
| S&P 500 Index – June 2025 @ $3,500 | Put | Merrill Lynch International | 4,292,847 | 9 | 61,020 |
| S&P 500 Index – December 2025 @ $3,400 | Put | Merrill Lynch International | 4,292,847 | 9 | 75,978 |
Total Purchased Options
(Premiums Paid, $636,100) | | $589,648 |
| Other Assets, Less Liabilities – (0.1)% | (478,792) |
| Net Assets – 100.0% | $384,674,510 |
| (a) | Non-income producing security. | | | |
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts and cleared swap agreements. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $10,846,612 and $374,306,690, respectively. | | | |
| (i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. | | | |
| (l) | A portion of this security is on loan. See Note 2 for additional information. | | | |
| (n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $49,704,546, representing 12.9% of net assets. | | | |
| (p) | Payment-in-kind (PIK) security for which interest income may be received in additional securities and/or cash. | | | |
| (s) | Security or a portion of the security was pledged to cover collateral requirements for certain derivative transactions. | | | |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| (u) | The security was valued using significant unobservable inputs and is considered level 3 under the fair value hierarchy. For further information about the fund’s level 3 holdings, please see Note 2 in the Notes to Financial Statements. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| AGM | Assured Guaranty Municipal |
| CLO | Collateralized Loan Obligation |
| CMT | Constant Maturity Treasury |
| EURIBOR | Euro Interbank Offered Rate |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| GDR | Global Depositary Receipt |
| ICE | Intercontinental Exchange |
| REIT | Real Estate Investment Trust |
| SOFR | Secured Overnight Financing Rate |
| SONIA | Sterling Overnight Index Average |
| TBA | To Be Announced |
| UMBS | Uniform Mortgage-Backed Security |
| Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below: |
| AUD | Australian Dollar |
| BRL | Brazilian Real |
| CAD | Canadian Dollar |
| CHF | Swiss Franc |
| CLP | Chilean Peso |
| CNH | Chinese Yuan Renminbi (Offshore) |
| CNY | China Yuan Renminbi |
| COP | Colombian Peso |
| CZK | Czech Koruna |
| DKK | Danish Krone |
| EUR | Euro |
| GBP | British Pound |
| HKD | Hong Kong Dollar |
| HUF | Hungarian Forint |
| IDR | Indonesian Rupiah |
| ILS | Israeli Shekel |
| JPY | Japanese Yen |
| KRW | South Korean Won |
| MXN | Mexican Peso |
| NOK | Norwegian Krone |
| NZD | New Zealand Dollar |
| PEN | Peruvian Nuevo Sol |
| PLN | Polish Zloty |
| RON | Romanian New Leu |
| SEK | Swedish Krona |
| SGD | Singapore Dollar |
| THB | Thai Baht |
| TRY | Turkish Lira |
| TWD | Taiwan Dollar |
| UYU | Uruguayan Peso |
| ZAR | South African Rand |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Derivative Contracts at 12/31/23 |
| Forward Foreign Currency Exchange Contracts |
Currency
Purchased | Currency
Sold | Counterparty | Settlement
Date | Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| AUD | 3,572,091 | USD | 2,308,619 | BNP Paribas S.A. | 1/19/2024 | $126,838 |
| AUD | 1,321,455 | USD | 846,685 | JPMorgan Chase Bank N.A. | 1/19/2024 | 54,285 |
| AUD | 3,436,000 | USD | 2,273,050 | JPMorgan Chase Bank N.A. | 2/22/2024 | 72,058 |
| AUD | 6,947,000 | USD | 4,409,150 | Morgan Stanley Capital Services, Inc. | 2/22/2024 | 332,255 |
| AUD | 2,065,562 | USD | 1,344,739 | State Street Bank Corp. | 1/19/2024 | 63,565 |
| BRL | 1,642,598 | USD | 333,063 | Citibank N.A. | 2/02/2024 | 4,539 |
| CAD | 1,155,000 | USD | 842,959 | HSBC Bank | 2/22/2024 | 29,315 |
| CAD | 1,328,616 | USD | 974,063 | JPMorgan Chase Bank N.A. | 1/19/2024 | 28,877 |
| CAD | 196,097 | USD | 146,632 | State Street Bank Corp. | 1/19/2024 | 1,397 |
| CAD | 6,859,275 | USD | 5,032,248 | UBS AG | 1/19/2024 | 145,655 |
| CHF | 1,566,000 | USD | 1,805,506 | Brown Brothers Harriman | 2/22/2024 | 65,899 |
| CHF | 824,000 | USD | 931,789 | Morgan Stanley Capital Services, Inc. | 2/22/2024 | 52,909 |
| CHF | 1,245,435 | USD | 1,397,265 | State Street Bank Corp. | 1/19/2024 | 85,859 |
| CLP | 98,837,007 | USD | 105,307 | Barclays Bank PLC | 1/16/2024 | 6,810 |
| CNH | 77,946,702 | USD | 10,692,571 | Barclays Bank PLC | 1/19/2024 | 258,287 |
| CNH | 5,106,000 | USD | 700,296 | Deutsche Bank AG | 1/19/2024 | 17,054 |
| CNH | 10,250,000 | USD | 1,411,541 | Goldman Sachs International | 1/19/2024 | 28,498 |
| CNH | 1,220,109 | USD | 171,179 | JPMorgan Chase Bank N.A. | 1/19/2024 | 236 |
| CNY | 2,712,000 | USD | 374,160 | Citibank N.A. | 2/22/2024 | 10,112 |
| COP | 1,093,226,617 | USD | 253,958 | Citibank N.A. | 1/17/2024 | 27,351 |
| DKK | 3,499,358 | USD | 498,845 | State Street Bank Corp. | 1/19/2024 | 19,786 |
| EUR | 1,516,206 | USD | 1,618,634 | Barclays Bank PLC | 1/19/2024 | 56,225 |
| EUR | 7,441,576 | USD | 8,075,755 | HSBC Bank | 1/19/2024 | 144,492 |
| EUR | 823,207 | USD | 875,298 | JPMorgan Chase Bank N.A. | 1/19/2024 | 34,046 |
| EUR | 6,900,000 | USD | 7,558,917 | Merrill Lynch International | 2/22/2024 | 73,336 |
| EUR | 1,013,126 | USD | 1,081,931 | Morgan Stanley Capital Services, Inc. | 1/19/2024 | 37,206 |
| EUR | 208,620 | USD | 227,058 | State Street Bank Corp. | 1/19/2024 | 3,393 |
| EUR | 4,687,588 | USD | 5,038,277 | UBS AG | 1/19/2024 | 139,812 |
| GBP | 1,398,401 | USD | 1,780,017 | Barclays Bank PLC | 1/19/2024 | 2,610 |
| GBP | 87,312 | USD | 110,870 | Brown Brothers Harriman | 1/19/2024 | 432 |
| GBP | 2,164,271 | USD | 2,685,406 | Deutsche Bank AG | 1/19/2024 | 73,523 |
| GBP | 756,642 | USD | 927,867 | HSBC Bank | 1/19/2024 | 36,671 |
| GBP | 716,000 | USD | 870,845 | JPMorgan Chase Bank N.A. | 2/22/2024 | 42,045 |
| GBP | 144,451 | USD | 177,611 | Morgan Stanley Capital Services, Inc. | 1/19/2024 | 6,529 |
| GBP | 2,474,000 | USD | 3,129,228 | Morgan Stanley Capital Services, Inc. | 2/22/2024 | 25,088 |
| GBP | 188,656 | USD | 228,870 | State Street Bank Corp. | 1/19/2024 | 11,622 |
| GBP | 4,528,654 | USD | 5,772,689 | State Street Bank Corp. | 2/22/2024 | 1,283 |
| HUF | 68,667,898 | USD | 186,262 | Goldman Sachs International | 1/19/2024 | 11,233 |
| IDR | 16,446,682,962 | USD | 1,059,669 | Barclays Bank PLC | 2/12/2024 | 8,077 |
| JPY | 2,284,071,733 | USD | 15,495,149 | Barclays Bank PLC | 1/19/2024 | 739,601 |
| JPY | 103,852,877 | USD | 713,317 | Citibank N.A. | 1/19/2024 | 24,849 |
| JPY | 35,260,595 | USD | 249,119 | Deutsche Bank AG | 1/19/2024 | 1,507 |
| JPY | 246,976,072 | USD | 1,674,551 | JPMorgan Chase Bank N.A. | 1/19/2024 | 80,909 |
| JPY | 746,088,000 | USD | 5,080,641 | JPMorgan Chase Bank N.A. | 2/22/2024 | 250,626 |
| JPY | 120,101,314 | USD | 806,436 | Morgan Stanley Capital Services, Inc. | 1/19/2024 | 47,221 |
| JPY | 209,383,800 | USD | 1,404,137 | UBS AG | 1/19/2024 | 84,123 |
| KRW | 1,541,697,047 | USD | 1,183,100 | Barclays Bank PLC | 1/26/2024 | 15,524 |
| KRW | 2,527,060,000 | USD | 1,964,138 | Barclays Bank PLC | 2/16/2024 | 2,957 |
| KRW | 371,907,030 | USD | 280,255 | Citibank N.A. | 1/26/2024 | 8,891 |
| KRW | 3,030,060,000 | USD | 2,342,709 | Merrill Lynch International | 2/16/2024 | 15,927 |
| NOK | 4,362,000 | USD | 407,266 | Brown Brothers Harriman | 2/22/2024 | 22,567 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Forward Foreign Currency Exchange Contracts - continued |
Currency
Purchased | Currency
Sold | Counterparty | Settlement
Date | Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives - continued |
| NOK | 8,878,341 | USD | 814,697 | Deutsche Bank AG | 1/19/2024 | $59,513 |
| NOK | 2,264,000 | USD | 212,667 | Deutsche Bank AG | 2/22/2024 | 10,429 |
| NOK | 12,682,781 | USD | 1,235,681 | Goldman Sachs International | 1/19/2024 | 13,135 |
| NOK | 1,893,699 | USD | 173,218 | Merrill Lynch International | 1/19/2024 | 13,246 |
| NOK | 146,882,623 | USD | 13,893,416 | State Street Bank Corp. | 2/22/2024 | 580,462 |
| NZD | 1,169,732 | USD | 688,520 | HSBC Bank | 1/19/2024 | 50,961 |
| NZD | 3,291,000 | USD | 1,948,038 | HSBC Bank | 2/22/2024 | 132,730 |
| NZD | 9,201,000 | USD | 5,657,113 | JPMorgan Chase Bank N.A. | 2/22/2024 | 160,314 |
| NZD | 5,075,391 | USD | 3,024,328 | State Street Bank Corp. | 1/19/2024 | 184,233 |
| PEN | 6,745,500 | USD | 1,793,130 | Barclays Bank PLC | 1/29/2024 | 28,944 |
| PEN | 273,556 | USD | 73,748 | Goldman Sachs International | 1/29/2024 | 144 |
| PLN | 2,454,931 | USD | 584,958 | HSBC Bank | 1/19/2024 | 38,830 |
| SEK | 110,761,497 | USD | 10,207,478 | Barclays Bank PLC | 2/22/2024 | 795,835 |
| SEK | 20,345,000 | USD | 1,862,966 | JPMorgan Chase Bank N.A. | 2/22/2024 | 158,155 |
| SEK | 2,626,000 | USD | 251,104 | Morgan Stanley Capital Services, Inc. | 2/22/2024 | 9,769 |
| SEK | 1,045,000 | USD | 96,257 | State Street Bank Corp. | 1/19/2024 | 7,418 |
| SEK | 56,154,080 | USD | 5,174,284 | UBS AG | 1/19/2024 | 396,745 |
| SGD | 715,724 | USD | 524,059 | State Street Bank Corp. | 1/19/2024 | 18,662 |
| THB | 39,377,582 | USD | 1,135,455 | Barclays Bank PLC | 1/16/2024 | 19,479 |
| THB | 67,026,590 | USD | 1,899,577 | JPMorgan Chase Bank N.A. | 1/19/2024 | 66,825 |
| TWD | 726,699 | USD | 22,532 | Goldman Sachs International | 1/30/2024 | 1,224 |
| USD | 614,180 | CZK | 13,732,670 | Brown Brothers Harriman | 1/19/2024 | 427 |
| USD | 353,920 | CZK | 7,843,822 | State Street Bank Corp. | 2/22/2024 | 3,694 |
| USD | 1,296,423 | CZK | 28,911,435 | UBS AG | 1/19/2024 | 4,287 |
| USD | 741,227 | EUR | 666,846 | HSBC Bank | 1/19/2024 | 4,604 |
| USD | 8,067 | EUR | 7,282 | State Street Bank Corp. | 1/19/2024 | 23 |
| USD | 268,521 | GBP | 210,415 | Deutsche Bank AG | 1/19/2024 | 292 |
| USD | 1,041,187 | IDR | 16,018,869,000 | Citibank N.A. | 2/22/2024 | 1,354 |
| USD | 246,017 | NZD | 388,854 | Deutsche Bank AG | 1/19/2024 | 191 |
| | | | | | | $6,195,835 |
| Liability Derivatives |
| AUD | 463,615 | USD | 318,107 | Barclays Bank PLC | 1/19/2024 | $(2,014) |
| CNH | 17,922,425 | USD | 2,520,752 | JPMorgan Chase Bank N.A. | 1/19/2024 | (2,802) |
| EUR | 111,043 | USD | 122,983 | JPMorgan Chase Bank N.A. | 1/19/2024 | (321) |
| EUR | 111,240 | USD | 123,156 | Morgan Stanley Capital Services, Inc. | 1/19/2024 | (275) |
| EUR | 782,071 | USD | 870,483 | UBS AG | 1/19/2024 | (6,577) |
| USD | 13,905,755 | AUD | 21,536,767 | HSBC Bank | 2/22/2024 | (793,328) |
| USD | 277,684 | AUD | 434,521 | JPMorgan Chase Bank N.A. | 1/19/2024 | (18,573) |
| USD | 245,426 | AUD | 360,389 | Morgan Stanley Capital Services, Inc. | 1/19/2024 | (288) |
| USD | 3,628,383 | AUD | 5,718,942 | State Street Bank Corp. | 1/19/2024 | (270,801) |
| USD | 196,405 | AUD | 305,146 | UBS AG | 1/19/2024 | (11,644) |
| USD | 211,385 | BRL | 1,049,209 | Barclays Bank PLC | 2/02/2024 | (4,258) |
| USD | 413,519 | BRL | 2,031,000 | Goldman Sachs International | 2/22/2024 | (2,772) |
| USD | 279,889 | BRL | 1,382,765 | Morgan Stanley Capital Services, Inc. | 2/02/2024 | (4,309) |
| USD | 1,477,505 | CAD | 1,993,000 | HSBC Bank | 2/22/2024 | (27,639) |
| USD | 3,143,836 | CAD | 4,245,830 | JPMorgan Chase Bank N.A. | 2/22/2024 | (62,681) |
| USD | 236,508 | CAD | 322,773 | NatWest Markets PLC | 1/19/2024 | (7,146) |
| USD | 3,537,597 | CAD | 4,815,097 | State Street Bank Corp. | 1/19/2024 | (97,205) |
| USD | 7,289,682 | CAD | 9,884,000 | State Street Bank Corp. | 2/22/2024 | (174,867) |
| USD | 2,011,273 | CAD | 2,729,718 | UBS AG | 1/19/2024 | (49,326) |
| USD | 17,024,327 | CHF | 14,725,692 | State Street Bank Corp. | 2/22/2024 | (573,198) |
| USD | 409,879 | CNY | 2,901,000 | Barclays Bank PLC | 2/22/2024 | (1,173) |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Forward Foreign Currency Exchange Contracts - continued |
Currency
Purchased | Currency
Sold | Counterparty | Settlement
Date | Unrealized
Appreciation
(Depreciation) |
| Liability Derivatives - continued |
| USD | 18,917,397 | CNY | 136,110,674 | Morgan Stanley Capital Services, Inc. | 2/22/2024 | $(368,556) |
| USD | 265,111 | COP | 1,149,784,960 | Citibank N.A. | 2/22/2024 | (28,644) |
| USD | 1,652,333 | CZK | 38,591,055 | HSBC Bank | 1/19/2024 | (72,414) |
| USD | 486,843 | DKK | 3,297,301 | State Street Bank Corp. | 2/22/2024 | (2,683) |
| USD | 5,269,375 | EUR | 4,954,501 | Barclays Bank PLC | 1/19/2024 | (203,555) |
| USD | 1,364,125 | EUR | 1,262,348 | Brown Brothers Harriman | 1/19/2024 | (30,312) |
| USD | 675,531 | EUR | 637,467 | Citibank N.A. | 1/19/2024 | (28,640) |
| USD | 4,171,685 | EUR | 3,884,795 | HSBC Bank | 1/19/2024 | (119,608) |
| USD | 45,337,240 | EUR | 41,343,800 | HSBC Bank | 2/22/2024 | (394,113) |
| USD | 1,443,902 | EUR | 1,338,912 | JPMorgan Chase Bank N.A. | 1/19/2024 | (35,108) |
| USD | 6,436,466 | EUR | 6,054,000 | JPMorgan Chase Bank N.A. | 2/22/2024 | (260,007) |
| USD | 44,419 | EUR | 41,759 | Merrill Lynch International | 1/19/2024 | (1,709) |
| USD | 338,700 | EUR | 314,639 | Morgan Stanley Capital Services, Inc. | 1/19/2024 | (8,862) |
| USD | 212,410 | EUR | 195,000 | NatWest Markets PLC | 1/19/2024 | (2,995) |
| USD | 8,636,969 | EUR | 7,863,754 | State Street Bank Corp. | 1/19/2024 | (49,634) |
| USD | 2,828,026 | EUR | 2,616,992 | UBS AG | 1/19/2024 | (62,802) |
| USD | 1,239,294 | GBP | 983,590 | Barclays Bank PLC | 1/19/2024 | (14,548) |
| USD | 253,953 | GBP | 201,580 | HSBC Bank | 1/19/2024 | (3,014) |
| USD | 1,676,438 | GBP | 1,355,614 | JPMorgan Chase Bank N.A. | 1/19/2024 | (51,646) |
| USD | 534,319 | GBP | 420,716 | Morgan Stanley Capital Services, Inc. | 1/19/2024 | (1,992) |
| USD | 3,421,650 | GBP | 2,738,000 | Morgan Stanley Capital Services, Inc. | 2/22/2024 | (69,262) |
| USD | 2,681,484 | GBP | 2,199,362 | State Street Bank Corp. | 1/19/2024 | (122,178) |
| USD | 4,032,574 | GBP | 3,319,509 | UBS AG | 1/19/2024 | (199,006) |
| USD | 351,340 | ILS | 1,321,342 | State Street Bank Corp. | 2/22/2024 | (14,069) |
| USD | 50,483 | JPY | 7,242,505 | Brown Brothers Harriman | 1/19/2024 | (995) |
| USD | 35,572,247 | JPY | 5,005,607,490 | HSBC Bank | 2/22/2024 | (195,958) |
| USD | 318,571 | JPY | 47,513,477 | JPMorgan Chase Bank N.A. | 1/19/2024 | (19,146) |
| USD | 894,258 | JPY | 128,472,000 | JPMorgan Chase Bank N.A. | 2/22/2024 | (23,755) |
| USD | 407,825 | JPY | 59,633,991 | NatWest Markets PLC | 1/19/2024 | (16,042) |
| USD | 1,355,991 | JPY | 198,378,939 | State Street Bank Corp. | 1/19/2024 | (54,048) |
| USD | 116,046 | KRW | 151,590,736 | Barclays Bank PLC | 1/09/2024 | (1,705) |
| USD | 2,103,123 | KRW | 2,714,653,480 | Barclays Bank PLC | 2/16/2024 | (9,997) |
| USD | 10,321,645 | KRW | 13,659,871,920 | Citibank N.A. | 1/26/2024 | (298,497) |
| USD | 2,378,380 | KRW | 3,156,538,970 | Citibank N.A. | 2/22/2024 | (79,631) |
| USD | 1,316,328 | KRW | 1,767,380,545 | Morgan Stanley Capital Services, Inc. | 2/22/2024 | (59,940) |
| USD | 2,876,334 | MXN | 53,097,990 | HSBC Bank | 1/19/2024 | (242,680) |
| USD | 278,606 | MXN | 4,861,650 | State Street Bank Corp. | 1/19/2024 | (6,971) |
| USD | 673,409 | MXN | 11,854,487 | State Street Bank Corp. | 2/22/2024 | (19,101) |
| USD | 783,518 | NOK | 8,587,556 | Deutsche Bank AG | 1/19/2024 | (62,059) |
| USD | 3,874,661 | NOK | 42,624,000 | Deutsche Bank AG | 2/22/2024 | (325,527) |
| USD | 9,922,755 | NZD | 16,757,164 | State Street Bank Corp. | 1/19/2024 | (670,789) |
| USD | 9,330,889 | NZD | 15,702,032 | State Street Bank Corp. | 2/22/2024 | (596,883) |
| USD | 1,665,892 | PEN | 6,469,491 | Barclays Bank PLC | 1/29/2024 | (81,627) |
| USD | 375,932 | PLN | 1,555,778 | UBS AG | 2/22/2024 | (19,211) |
| USD | 187,948 | RON | 857,000 | JPMorgan Chase Bank N.A. | 2/22/2024 | (2,110) |
| USD | 1,219,579 | SEK | 13,449,000 | Morgan Stanley Capital Services, Inc. | 2/22/2024 | (116,477) |
| USD | 4,388,558 | SEK | 47,670,692 | UBS AG | 1/19/2024 | (340,837) |
| USD | 564,624 | SGD | 758,722 | JPMorgan Chase Bank N.A. | 2/22/2024 | (11,595) |
| USD | 1,079,209 | THB | 38,889,309 | Barclays Bank PLC | 1/16/2024 | (61,404) |
| | | | | | | $(7,573,539) |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Futures Contracts |
| Description | Long/
Short | Currency | Contracts | Notional
Amount | Expiration
Date | Value/Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| Equity Futures | | |
| CAC 40 Index | Short | EUR | 43 | $3,586,348 | January – 2024 | $5,826 |
| FTSE Taiwan Index | Long | USD | 52 | 3,225,040 | January – 2024 | 64,938 |
| Hang Seng Index | Long | HKD | 57 | 6,252,955 | January – 2024 | 125,080 |
| KOSPI 200 Index | Long | KRW | 79 | 5,562,020 | March – 2024 | 370,630 |
| Mexbol Index | Long | MXN | 7 | 241,267 | March – 2024 | 10,713 |
| Mini Ibovespa | Long | BRL | 403 | 2,253,103 | February – 2024 | 119,936 |
| NSE IFSC NIFTY 50 Index | Long | USD | 9 | 393,273 | January – 2024 | 5,356 |
| OMX 30 Index | Long | SEK | 543 | 12,927,546 | January – 2024 | 319,977 |
| S&P 500 E-Mini Index | Long | USD | 13 | 3,133,000 | March – 2024 | 116,601 |
| S&P/TSX 60 Index | Long | CAD | 2 | 383,503 | March – 2024 | 12,987 |
| Topix Index | Long | JPY | 52 | 8,725,674 | March – 2024 | 95,481 |
| | | | | | | $1,247,525 |
| Interest Rate Futures | | |
| Australian Bond 10 yr | Long | AUD | 370 | $29,415,688 | March – 2024 | $806,113 |
| Euro-Bobl 5 yr | Long | EUR | 71 | 9,349,221 | March – 2024 | 99,441 |
| Euro-Buxl 30 yr | Long | EUR | 10 | 1,564,518 | March – 2024 | 99,774 |
| U.S. Treasury Bond 30 yr | Long | USD | 52 | 6,496,750 | March – 2024 | 502,805 |
| U.S. Treasury Note 10 yr | Long | USD | 299 | 33,754,297 | March – 2024 | 1,073,439 |
| U.S. Treasury Note 2 yr | Long | USD | 61 | 12,560,758 | March – 2024 | 123,251 |
| U.S. Treasury Note 5 yr | Long | USD | 59 | 6,417,633 | March – 2024 | 147,485 |
| U.S. Treasury Ultra Bond 30 yr | Long | USD | 12 | 1,603,125 | March – 2024 | 153,311 |
| | | | | | | $3,005,619 |
| | | | | | | $4,253,144 |
| Liability Derivatives |
| Equity Futures | | |
| BIST 30 Index | Long | TRY | 2,602 | $7,525,768 | February – 2024 | $(263,278) |
| DAX Index | Long | EUR | 1 | 466,778 | March – 2024 | (997) |
| FTSE 100 Index | Short | GBP | 52 | 5,141,148 | March – 2024 | (118,247) |
| FTSE MIB Index | Long | EUR | 74 | 12,466,655 | March – 2024 | (48,264) |
| FTSE/JSE Top 40 Index | Short | ZAR | 262 | 10,225,054 | March – 2024 | (264,534) |
| IBEX 35 Index | Long | EUR | 99 | 11,023,315 | January – 2024 | (103,782) |
| MSCI Singapore Index | Short | SGD | 630 | 13,733,737 | January – 2024 | (487,970) |
| Russell 2000 Index | Short | USD | 154 | 15,767,290 | March – 2024 | (1,218,560) |
| S&P/ASX 200 Index | Short | AUD | 76 | 9,820,717 | March – 2024 | (200,894) |
| | | | | | | $(2,706,526) |
| Interest Rate Futures | | |
| Canadian Treasury Bond 10 yr | Short | CAD | 52 | $4,873,295 | March – 2024 | $(211,132) |
| Euro-Bund 10 yr | Short | EUR | 255 | 38,628,430 | March – 2024 | (970,379) |
| Euro-Schatz 2 yr | Short | EUR | 73 | 8,586,287 | March – 2024 | (33,292) |
| Japan Government Bond 10 yr | Short | JPY | 5 | 5,202,482 | March – 2024 | (68,493) |
| Long Gilt 10 yr | Short | GBP | 189 | 24,729,296 | March – 2024 | (1,474,484) |
| U.S. Treasury Ultra Note 10 yr | Short | USD | 40 | 4,720,625 | March – 2024 | (153,380) |
| | | | | | | $(2,911,160) |
| | | | | | | $(5,617,686) |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Cleared Swap Agreements |
Maturity
Date | Notional
Amount | Counterparty | Cash Flows
to Receive/
Frequency | Cash Flows
to Pay/
Frequency | Unrealized
Appreciation
(Depreciation) | | Net Unamortized
Upfront Payments
(Receipts) | | Value |
| Asset Derivatives | | | | | |
| Interest Rate Swaps | | | | | |
| 1/02/26 | BRL | 4,100,000 | centrally cleared | 11.095%/At Maturity | Average Daily BZDIOVRA/At Maturity | $13,264 | | $— | | $13,264 |
| 1/02/26 | BRL | 4,100,000 | centrally cleared | 10.48%/At Maturity | Average Daily BZDIOVRA/At Maturity | 4,016 | | — | | 4,016 |
| 3/18/26 | USD | 121,300,000 | centrally cleared | 3.942%/Annually | SOFR - 1 day/Annually | 252,141 | | 29,046 | | 281,187 |
| 1/04/27 | BRL | 4,200,000 | centrally cleared | 10.3625%/At Maturity | Average Daily BZDIOVRA/At Maturity | 6,126 | | — | | 6,126 |
| 6/18/27 | USD | 33,500,000 | centrally cleared | 3.412%/Annually | SOFR - 1 day/Annually | 183,421 | | — | | 183,421 |
| 3/21/29 | USD | 51,300,000 | centrally cleared | 3.525%/Annually | SOFR - 1 day/Annually | 187,298 | | 22,509 | | 209,807 |
| | | | | | | $646,266 | | $51,555 | | $697,821 |
| Liability Derivatives | | | | | |
| Interest Rate Swaps | | | | | |
| 3/21/29 | CNY | 37,913,000 | centrally cleared | 2.38%/Quarterly | CFRR/Quarterly | $(52,040) | | $24,011 | | $(28,029) |
| 3/15/34 | USD | 28,100,000 | centrally cleared | SOFR - 1 day/Annually | 3.477%/Annually | (104,813) | | (2,983) | | (107,796) |
| 3/18/54 | USD | 13,000,000 | centrally cleared | SOFR - 1 day/Annually | 3.305%/Annually | (24,293) | | (8,278) | | (32,571) |
| 6/18/55 | USD | 3,500,000 | centrally cleared | SOFR - 1 day/Annually | 3.458%/Annually | (158,007) | | — | | (158,007) |
| | | | | | | $(339,153) | | $12,750 | | $(326,403) |
| Uncleared Swap Agreements |
Maturity
Date | Notional
Amount | Counterparty | Cash Flows
to Receive/
Frequency | Cash Flows
to Pay/
Frequency | Unrealized
Appreciation
(Depreciation) | | Net Unamortized
Upfront Payments
(Receipts) | | Value |
| Asset Derivatives | | | | | |
| Credit Default Swaps | | | | | |
| 6/20/28 | EUR | 580,000 | Barclays Bank PLC | 5.00%/Quarterly | (1) | $23,641 | | $76,104 | | $99,745 |
(1) Fund, as protection seller, to pay notional amount upon a defined credit event by Glencore Funding LLC, 1.75%, 3/17/25, a BBB+ rated bond. The fund entered into the contract to gain issuer exposure.
The credit ratings presented here are an indicator of the current payment/performance risk of the related swap agreement, the reference obligation for which may be either a single security or, in the case of a credit default swap index, a basket of securities issued by corporate or sovereign issuers. Ratings are assigned to each reference security, including each individual security within a reference basket of securities, utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, than the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). The ratings for a credit default swap index are calculated by MFS as a weighted average of the external credit ratings of the individual securities that compose the index’s reference basket of securities.
At December 31, 2023, the fund had cash collateral of $1,122,987 and other liquid securities with an aggregate value of $28,278,207 to cover any collateral or margin obligations for certain derivative contracts. Restricted cash and/or deposits with brokers in the Statement of Assets and Liabilities are comprised of cash collateral.
See Notes to Financial Statements
MFS Global Tactical Allocation Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/23Assets | |
| Investments in unaffiliated issuers, at value, including $1,275,263 of securities on loan (identified cost, $330,883,748) | $374,306,690 |
| Investments in affiliated issuers, at value (identified cost, $10,844,551) | 10,846,612 |
| Cash | 70 |
| Foreign currency, at value (identified cost, $12) | 24 |
| Restricted cash for | |
| Forward foreign currency exchange contracts | 540,000 |
| Deposits with brokers for | |
| Futures contracts | 560,706 |
| Exchange-traded options | 22,281 |
| Receivables for | |
| Net daily variation margin on open cleared swap agreements | 173,717 |
| Forward foreign currency exchange contracts | 6,195,835 |
| Net daily variation margin on open futures contracts | 505,487 |
| Investments sold | 737,724 |
| Fund shares sold | 7,990 |
| Interest and dividends | 2,833,246 |
| Uncleared swaps, at value (net of unamortized premiums paid, $76,104) | 99,745 |
| Other assets | 2,066 |
| Total assets | $396,832,193 |
| Liabilities | |
| Payables for | |
| Forward foreign currency exchange contracts | $7,573,539 |
| Investments purchased | 89,103 |
| TBA purchase commitments | 3,565,435 |
| Fund shares reacquired | 762,904 |
| Payable to affiliates | |
| Investment adviser | 30,457 |
| Administrative services fee | 634 |
| Shareholder servicing costs | 10 |
| Distribution and/or service fees | 9,671 |
| Payable for independent Trustees' compensation | 408 |
| Deferred foreign capital gains tax expense payable | 227 |
| Accrued expenses and other liabilities | 125,295 |
| Total liabilities | $12,157,683 |
| Net assets | $384,674,510 |
| Net assets consist of | |
| Paid-in capital | $339,631,125 |
| Total distributable earnings (loss) | 45,043,385 |
| Net assets | $384,674,510 |
| Shares of beneficial interest outstanding | 28,794,008 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $32,096,305 | 2,355,094 | $13.63 |
| Service Class | 352,578,205 | 26,438,914 | 13.34 |
See Notes to Financial Statements
MFS Global Tactical Allocation Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/23 | |
| Net investment income (loss) | |
| Income | |
| Interest | $10,946,323 |
| Dividends | 4,409,113 |
| Dividends from affiliated issuers | 478,290 |
| Other | 17,373 |
| Income on securities loaned | 5,333 |
| Foreign taxes withheld | (258,896) |
| Total investment income | $15,597,536 |
| Expenses | |
| Management fee | $2,886,793 |
| Distribution and/or service fees | 905,634 |
| Shareholder servicing costs | 2,440 |
| Administrative services fee | 67,195 |
| Independent Trustees' compensation | 9,272 |
| Custodian fee | 105,932 |
| Audit and tax fees | 80,225 |
| Legal fees | 2,004 |
| Interest expense and fees | 289,856 |
| Miscellaneous | 52,111 |
| Total expenses | $4,401,462 |
| Reduction of expenses by investment adviser | (207,582) |
| Net expenses | $4,193,880 |
| Net investment income (loss) | $11,403,656 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (includes $3,685 foreign capital gains tax) | $(3,928,145) |
| Affiliated issuers | (1,347) |
| Written options | 21,973 |
| Futures contracts | 4,223,167 |
| Swap agreements | (1,058,936) |
| Forward foreign currency exchange contracts | (3,866,980) |
| Foreign currency | (1,646,069) |
| Net realized gain (loss) | $(6,256,337) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (includes $2,779 decrease in deferred foreign capital gains tax) | $29,317,633 |
| Affiliated issuers | 1,342 |
| Futures contracts | (2,428,877) |
| Swap agreements | 321,694 |
| Forward foreign currency exchange contracts | 2,416,876 |
| Translation of assets and liabilities in foreign currencies | (49,192) |
| Net unrealized gain (loss) | $29,579,476 |
| Net realized and unrealized gain (loss) | $23,323,139 |
| Change in net assets from operations | $34,726,795 |
See Notes to Financial Statements
MFS Global Tactical Allocation Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/23 | 12/31/22 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $11,403,656 | $7,981,487 |
| Net realized gain (loss) | (6,256,337) | 10,228,127 |
| Net unrealized gain (loss) | 29,579,476 | (56,852,765) |
| Change in net assets from operations | $34,726,795 | $(38,643,151) |
| Total distributions to shareholders | $(15,485,776) | $(38,142,282) |
| Change in net assets from fund share transactions | $(45,353,806) | $(35,170,498) |
| Total change in net assets | $(26,112,787) | $(111,955,931) |
| Net assets | | |
| At beginning of period | 410,787,297 | 522,743,228 |
| At end of period | $384,674,510 | $410,787,297 |
See Notes to Financial Statements
MFS Global Tactical Allocation Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $12.98 | $15.35 | $15.79 | $15.86 | $14.58 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.41 | $0.28 | $0.25 | $0.22 | $0.29 |
| Net realized and unrealized gain (loss) | 0.80 | (1.40) | 0.19 | 0.71 | 1.80 |
| Total from investment operations | $1.21 | $(1.12) | $0.44 | $0.93 | $2.09 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.06) | $(0.31) | $(0.16) | $(0.28) | $(0.45) |
| From net realized gain | (0.50) | (0.94) | (0.72) | (0.72) | (0.36) |
| Total distributions declared to shareholders | $(0.56) | $(1.25) | $(0.88) | $(1.00) | $(0.81) |
| Net asset value, end of period (x) | $13.63 | $12.98 | $15.35 | $15.79 | $15.86 |
| Total return (%) (k)(r)(s)(x) | 9.63 | (7.20) | 2.79 | 6.23 | 14.58 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.89 | 0.84 | 0.82 | 0.83 | 0.81 |
| Expenses after expense reductions | 0.83 | 0.77 | 0.78 | 0.82 | 0.80 |
| Net investment income (loss) | 3.12 | 2.01 | 1.59 | 1.45 | 1.85 |
| Portfolio turnover | 101 | 90 | 132 | 120 | 82 |
| Net assets at end of period (000 omitted) | $32,096 | $32,846 | $39,123 | $43,513 | $46,175 |
| Supplemental Ratios (%): | | | | | |
| Ratios of expenses to average net assets after expense reductions and excluding interest expense and fees | 0.76 | N/A | N/A | N/A | N/A |
See Notes to Financial Statements
MFS Global Tactical Allocation Portfolio
Financial Highlights - continued
| Service Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $12.71 | $15.05 | $15.49 | $15.57 | $14.32 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.37 | $0.24 | $0.21 | $0.18 | $0.24 |
| Net realized and unrealized gain (loss) | 0.78 | (1.37) | 0.19 | 0.70 | 1.77 |
| Total from investment operations | $1.15 | $(1.13) | $0.40 | $0.88 | $2.01 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.02) | $(0.27) | $(0.12) | $(0.24) | $(0.40) |
| From net realized gain | (0.50) | (0.94) | (0.72) | (0.72) | (0.36) |
| Total distributions declared to shareholders | $(0.52) | $(1.21) | $(0.84) | $(0.96) | $(0.76) |
| Net asset value, end of period (x) | $13.34 | $12.71 | $15.05 | $15.49 | $15.57 |
| Total return (%) (k)(r)(s)(x) | 9.35 | (7.44) | 2.58 | 5.99 | 14.30 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.14 | 1.09 | 1.07 | 1.08 | 1.06 |
| Expenses after expense reductions | 1.08 | 1.02 | 1.03 | 1.07 | 1.05 |
| Net investment income (loss) | 2.87 | 1.75 | 1.34 | 1.19 | 1.60 |
| Portfolio turnover | 101 | 90 | 132 | 120 | 82 |
| Net assets at end of period (000 omitted) | $352,578 | $377,941 | $483,621 | $530,703 | $552,698 |
| Supplemental Ratios (%): | | | | | |
| Ratios of expenses to average net assets after expense reductions and excluding interest expense and fees | 1.01 | N/A | N/A | N/A | N/A |
| (d) | Per share data is based on average shares outstanding. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Global Tactical Allocation Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in derivatives as part of its principal investment strategy. Derivatives can be highly volatile and involve risks in addition to the risks of the underlying indicators on which the derivative is based. Derivatives can involve leverage. The fund invests in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions. Investments in emerging markets can involve additional and greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, accounting, and auditing systems, greater government involvement in the economy, greater risk of new or inconsistent government treatment of or restrictions on issuers and instruments, and greater political, social, and economic instability than developed markets.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. For put options, the position may be valued at the last daily ask quotation if there are no trades reported during the day. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Swap agreements are generally valued using valuations provided by a third-party pricing service, which for cleared swaps includes an evaluation of any trading activity at the clearinghouses. Open-end investment companies are generally valued at net asset value per share. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments, such as futures contracts, forward foreign currency exchange contracts, and swap agreements. The following is a summary of the levels used as of December 31, 2023 in valuing the fund's assets and liabilities:
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| United States | $73,165,594 | $— | $— | $73,165,594 |
| United Kingdom | 10,079,302 | — | — | 10,079,302 |
| Japan | 9,376,625 | — | — | 9,376,625 |
| France | 9,314,982 | — | — | 9,314,982 |
| Switzerland | 7,170,750 | — | — | 7,170,750 |
| Germany | 3,623,770 | 100,727 | — | 3,724,497 |
| Canada | 3,471,706 | — | — | 3,471,706 |
| South Korea | — | 2,457,348 | — | 2,457,348 |
| Netherlands | 2,413,330 | — | — | 2,413,330 |
| Other Countries | 11,412,878 | — | 0 | 11,412,878 |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | — | 4,044,725 | — | 4,044,725 |
| Non - U.S. Sovereign Debt | — | 101,598,516 | — | 101,598,516 |
| Municipal Bonds | — | 3,092,035 | — | 3,092,035 |
| U.S. Corporate Bonds | — | 34,245,568 | — | 34,245,568 |
| Residential Mortgage-Backed Securities | — | 27,867,247 | — | 27,867,247 |
| Commercial Mortgage-Backed Securities | — | 7,695,868 | — | 7,695,868 |
| Asset-Backed Securities (including CDOs) | — | 9,910,927 | — | 9,910,927 |
| Foreign Bonds | — | 53,264,792 | — | 53,264,792 |
| Mutual Funds | 10,846,612 | — | — | 10,846,612 |
| Total | $140,875,549 | $244,277,753 | $0 | $385,153,302 |
| Other Financial Instruments | | | | |
| Futures Contracts – Assets | $3,882,514 | $370,630 | $— | $4,253,144 |
| Futures Contracts – Liabilities | (5,617,686) | — | — | (5,617,686) |
| Forward Foreign Currency Exchange Contracts – Assets | — | 6,195,835 | — | 6,195,835 |
| Forward Foreign Currency Exchange Contracts – Liabilities | — | (7,573,539) | — | (7,573,539) |
| Swap Agreements – Assets | — | 797,566 | — | 797,566 |
| Swap Agreements – Liabilities | — | (326,403) | — | (326,403) |
For further information regarding security characteristics, see the Portfolio of Investments. At December 31, 2023, the fund held two level 3 securities valued at $0, which were also held and valued at $0 at December 31, 2022.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives — The fund uses derivatives in an attempt to adjust exposure to markets, asset classes, and currencies based on the adviser’s assessment of the relative attractiveness of such markets, asset classes, and currencies. Derivatives are used to increase or decrease the fund’s exposure to markets, asset classes, or currencies resulting from the fund’s individual security selections, and to expose the fund to markets, asset classes, or currencies in which the fund’s individual security selection has resulted in little or no exposure. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase or decrease market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were written options, purchased options, futures contracts, forward foreign currency exchange contracts, and swap agreements. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily fluctuation in the price for that type of future exceeds the daily limit set by the exchange. The fund's period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at December 31, 2023 as reported in the Statement of Assets and Liabilities:
| | | Fair Value (a) |
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Equity | Purchased Option Contracts | $278,846 | $— |
| Credit | Purchased Option Contracts | 310,802 | — |
| Equity | Futures Contracts | 1,247,525 | (2,706,526) |
| Interest Rate | Futures Contracts | 3,005,619 | (2,911,160) |
| Foreign Exchange | Forward Foreign Currency Exchange Contracts | 6,195,835 | (7,573,539) |
| Interest Rate | Cleared Swap Agreements | 697,821 | (326,403) |
| Credit | Uncleared Swap Agreements | 99,745 | — |
| Total | | $11,836,193 | $(13,517,628) |
(a) The value of purchased options outstanding is included in investments in unaffiliated issuers, at value, within the Statement of Assets and Liabilities. Values presented in this table for futures contracts and cleared swap agreements correspond to the values reported in the Portfolio of Investments. Only the current day net variation margin for futures contracts and cleared swap agreements is reported separately within the Statement of Assets and Liabilities.
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended December 31, 2023 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Swap
Agreements | Forward Foreign
Currency
Exchange
Contracts | Unaffiliated Issuers
(Purchased
Options) | Written
Options |
| Interest Rate | $(740,763) | $(1,221,535) | $— | $— | $— |
| Foreign Exchange | — | — | (3,866,980) | — | — |
| Equity | 4,963,930 | — | — | (635,643) | — |
| Credit | — | 162,599 | — | (159,475) | 21,973 |
| Total | $4,223,167 | $(1,058,936) | $(3,866,980) | $(795,118) | $21,973 |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended December 31, 2023 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Swap
Agreements | Forward Foreign
Currency
Exchange
Contracts | Unaffiliated Issuers
(Purchased
Options) |
| Interest Rate | $614,290 | $279,989 | $— | $— |
| Foreign Exchange | — | — | 2,416,876 | — |
| Equity | (3,043,167) | — | — | 76,416 |
| Credit | — | 41,705 | — | 109,572 |
| Total | $(2,428,877) | $321,694 | $2,416,876 | $185,988 |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
agreements. For derivatives traded under an ISDA Master Agreement, which contains a credit support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
The following table presents the fund's derivative assets and liabilities (by type) on a gross basis as of December 31, 2023:
| Gross Amounts of: | Derivative Assets | Derivative Liabilities |
| Futures Contracts (a) | $505,487 | $— |
| Uncleared Swaps, at value | 99,745 | — |
| Cleared Swap Agreements (a) | 173,717 | — |
| Forward Foreign Currency Exchange Contracts | 6,195,835 | (7,573,539) |
| Purchased Options (a) | 589,648 | — |
Total Gross Amount of Derivative Assets
and Liabilities Presented in the
Statement of Assets & Liabilities | $7,564,432 | $(7,573,539) |
Less: Derivative Assets and Liabilities Not Subject
to a Master Netting Agreement or
Similar Arrangement | 3,046,945 | (5,216,767) |
Total Gross Amount of Derivative Assets and
Liabilities Subject to a Master Netting Agreement or
Similar Arrangement | $4,517,487 | $(2,356,772) |
(a) The value of purchased options outstanding is included in investments in unaffiliated issuers, at value, within the Statement of Assets and Liabilities. The amount presented here represents the fund's current day net variation margin for futures contracts and for cleared swap agreements. This amount, which is recognized within the Statement of Assets and Liabilities, differs from the fair value of the futures contracts and cleared swap agreements which is presented in the tables that follow the Portfolio of Investments.
The following table presents (by counterparty) the fund's derivative assets net of amounts available for offset under Master Netting Agreements (or similar arrangements) and net of the related collateral held by the fund at December 31, 2023:
| | | Amounts Not Offset in the
Statement of Assets & Liabilities |
| | Gross Amount
of Derivative
Assets Subject
to a Master
Netting
Agreement (or
Similar
Arrangement)
by Counterparty | Financial
Instruments
Available
for Offset | Financial
Instruments
Collateral
Received (b) | Cash
Collateral
Received (b) | Net Amount
of Derivative
Assets by
Counterparty |
| Barclays Bank PLC | $2,105,562 | $(380,281) | $(1,725,281) | $— | $— |
| BNP Paribas S.A. | 126,838 | — | — | — | 126,838 |
| Brown Brothers Harriman | 89,325 | (31,307) | — | — | 58,018 |
| Citibank N.A. | 77,096 | (77,096) | — | — | — |
| Deutsche Bank AG | 162,509 | (162,509) | — | — | — |
| Goldman Sachs International | 154,961 | (2,772) | — | — | 152,189 |
| JPMorgan Chase Bank N.A. | 948,376 | (487,744) | — | (260,000) | 200,632 |
| Merrill Lynch International | 341,843 | (1,709) | — | (340,134) | — |
| Morgan Stanley Capital Services, Inc. | 510,977 | (510,977) | — | — | — |
| Total | $4,517,487 | $(1,654,395) | $(1,725,281) | $(600,134) | $537,677 |
The following table presents (by counterparty) the fund's derivative liabilities net of amounts available for offset under Master Netting Agreements (or similar arrangements) and net of the related collateral pledged by the fund at December 31, 2023:
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
| | | Amounts Not Offset in the
Statement of Assets & Liabilities |
| | Gross Amount
of Derivative
Liabilities Subject
to a Master
Netting
Agreement (or
Similar
Arrangement)
by Counterparty | Financial
Instruments
Available
for Offset | Financial
Instruments
Collateral
Pledged (b) | Cash
Collateral
Pledged (b) | Net Amount
of Derivative
Liabilities by
Counterparty |
| Barclays Bank PLC | $(380,281) | $380,281 | $— | $— | $— |
| Brown Brothers Harriman | (31,307) | 31,307 | — | — | — |
| Citibank N.A. | (435,412) | 77,096 | — | 280,000 | (78,316) |
| Deutsche Bank AG | (387,586) | 162,509 | — | — | (225,077) |
| Goldman Sachs International | (2,772) | 2,772 | — | — | — |
| JPMorgan Chase Bank N.A. | (487,744) | 487,744 | — | — | — |
| Merrill Lynch International | (1,709) | 1,709 | — | — | — |
| Morgan Stanley Capital Services, Inc. | (629,961) | 510,977 | — | 118,984 | — |
| Total | $(2,356,772) | $1,654,395 | $— | $398,984 | $(303,393) |
(b) The amount presented here may be less than the total amount of collateral (received)/pledged as the excess collateral (received)/pledged is not shown for purposes of this presentation.
Written Options — In exchange for a premium, the fund wrote put options on securities for which it anticipated the price would increase. At the time the option was written, the fund believed the premium received exceeded the potential loss that could result from adverse price changes in the options’ underlying securities. In a written option, the fund as the option writer grants the buyer the right to purchase from, or sell to, the fund a specified number of shares or units of a particular security, currency or index at a specified price within a specified period of time.
The premium received is initially recorded as a liability in the Statement of Assets and Liabilities. The option is subsequently marked-to-market daily with the difference between the premium received and the market value of the written option being recorded as unrealized appreciation or depreciation. When a written option expires, the fund realizes a gain equal to the amount of the premium received. The difference between the premium received and the amount paid on effecting a closing transaction is considered a realized gain or loss. When a written put option is exercised, the premium reduces the cost basis of the security purchased by the fund.
At the initiation of the written option contract, for exchange traded options, the fund is required to deposit securities or cash as collateral with the custodian for the benefit of the broker or directly with the clearing broker, based on the type of option. For uncleared options, the fund may post collateral subject to the terms of an ISDA Master Agreement as generally described above if the market value of the options contract moves against it. The fund, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the securities underlying the written option. Losses from writing options can exceed the premium received and can exceed the potential loss from an ordinary buy and sell transaction. Although the fund’s market risk may be significant, the maximum counterparty credit risk to the fund is equal to the market value of any collateral posted to the broker. For uncleared options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above.
Purchased Options — The fund purchased call and put options for a premium. Purchased call and put options entitle the holder to buy and sell a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing call options may hedge against an anticipated increase in the dollar cost of securities or currency to be acquired or increase the fund’s exposure to an underlying instrument. Purchasing put options may hedge against an anticipated decline in the value of portfolio securities or currency or decrease the fund's exposure to an underlying instrument.
The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased call and put options which have expired are treated as
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased call option, the premium paid is added to the cost of the security or financial instrument purchased. Upon the exercise or closing of a purchased put option, the premium paid is offset against the proceeds on the sale of the underlying security or financial instrument in order to determine the realized gain or loss on investments.
Whether or not the option is exercised, the fund's maximum risk of loss from purchasing an option is the amount of premium paid. All option contracts involve credit risk if the counterparty to the option contract fails to perform. For uncleared options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Futures Contracts — The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Forward Foreign Currency Exchange Contracts — The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on forward foreign currency exchange contracts.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Swap Agreements — The fund entered into swap agreements which generally involve a periodic exchange of cash payments on a net basis, at specified intervals or upon the occurrence of specified events, between the fund and a counterparty. Certain swap agreements may be entered into as a bilateral contract (“uncleared swaps”) while others are required to be centrally cleared (“cleared swaps”).
Both cleared and uncleared swap agreements are marked to market daily. The value of uncleared swap agreements is reported in the Statement of Assets and Liabilities as “Uncleared swaps, at value” which includes any related interest accruals to be paid or received by the fund. For cleared swaps, payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the cleared swap, such that only the current day net receivable or payable for variation margin is reported in the Statement of Assets and Liabilities.
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
For both cleared and uncleared swaps, premiums paid or received at the inception of the agreements are amortized over the term of the agreement as realized gain or loss on swap agreements in the Statement of Operations. The periodic exchange of net cash payments, as well as any liquidation payment received or made upon early termination, are recorded as a realized gain or loss on swap agreements in the Statement of Operations. The change in unrealized appreciation or depreciation on swap agreements in the Statement of Operations reflects the aggregate change over the reporting period in the value of swaps net of any unamortized premiums paid or received.
Risks related to swap agreements include the possible lack of a liquid market, unfavorable market and interest rate movements of the underlying instrument and the failure of the counterparty to perform under the terms of the agreements. The fund's maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from/paid to the counterparty over the contract's remaining life, to the extent that the amount is positive. To address counterparty risk, uncleared swap agreements are limited to only highly-rated counterparties. Risk is further reduced by having an ISDA Master Agreement (“ISDA”) between the fund and the counterparty and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA. The fund's counterparty risk due to cleared swaps is mitigated by the fact that the clearinghouse is the true counterparty to the transaction and the regulatory requirement safeguards in the event of a clearing broker bankruptcy.
The fund entered into interest rate swap agreements in order to manage its exposure to interest or foreign exchange rate fluctuations. Interest rate swap agreements involve the periodic exchange of cash flows, between the fund and a counterparty, based on the difference between two interest rates applied to a notional principal amount. The two interest rates exchanged may either be a fixed rate and a floating rate or two floating rates based on different indices.
The fund entered into credit default swap agreements in order to manage its exposure to the market or certain sectors of the market, to reduce its credit risk exposure to defaults of corporate and sovereign issuers or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. A credit default swap’s reference obligation may be either a single security or a basket of securities issued by corporate or sovereign issuers. At the inception of the agreement, the protection buyer may make an upfront payment to or receive an upfront payment from the protection seller. Over the term of the agreement, the protection buyer will make a series of periodic payments to the protection seller based on a fixed percentage applied to the agreement’s notional amount in exchange for a promise from the protection seller to make a specific payment should a defined credit event occur with respect to the reference obligation. Although agreement-specific, credit events generally consist of a combination of the following: bankruptcy, failure to pay, restructuring, obligation acceleration, obligation default, or repudiation/moratorium. If a defined credit event occurs, the protection buyer will either (i) receive from the protection seller an amount equal to the agreement’s notional amount and deliver the reference obligation (i.e., physical settlement) or (ii) receive from the protection seller a net settlement of cash equal to the agreement’s notional amount less the recovery value of the reference obligation. Upon determination of the final price for the reference obligation (or upon delivery of the reference obligation in the case of physical settlement), the difference between the recovery value of the reference obligation and the agreement’s notional amount is recorded as realized gain or loss on swap agreements in the Statement of Operations.
Credit default swap agreements are considered to have credit-risk-related contingent features since they trigger payment by the protection seller to the protection buyer upon the occurrence of a defined credit event. The maximum amount of future, undiscounted payments that the fund, as protection seller, could be required to make is equal to the swap agreement’s notional amount. The protection seller’s payment obligation would be offset to the extent of the value of the agreement’s deliverable obligation. At December 31, 2023, the fund did not hold any credit default swap agreements at an unrealized loss where it is the protection seller. The fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the agreement.
Mortgage-Backed/Asset-Backed Securities — The fund invests a significant portion of its assets in asset-backed and/or mortgage-backed securities. For these securities, the value of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the underlying assets or collateral. Enforcing rights, if any, against the underlying assets or collateral may be difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund’s Portfolio of Investments, with a fair value of $1,275,263. The fair value of the fund’s investment securities on loan is presented gross in the Statement of Assets and Liabilities. These loans were collateralized by U.S. Treasury Obligations of $1,342,837 held by the custodian. The collateral on securities loaned exceeded the value of securities on loan at period end. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Investment transactions are recorded on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may purchase or sell mortgage-backed securities on a “To Be Announced” (TBA) basis. A TBA transaction is subject to extended settlement and typically does not designate the actual security to be delivered, but instead includes an approximate principal amount. The price of the TBA security and the date that it will be settled are fixed at the time the transaction is negotiated. The value of the security varies with market fluctuations and no interest accrues to the fund until settlement takes place. TBA purchase and sale commitments are held at carrying amount, which approximates fair value and are categorized as level 2 within the fair value hierarchy and included in TBA purchase and TBA sale commitments in the Statement of Assets and Liabilities, as applicable. Losses may arise as a result of changes in the value of the TBA investment prior to settlement date or due to counterparty non-performance.
The fund may also enter into mortgage dollar rolls, typically TBA dollar rolls, in which the fund sells TBA mortgage-backed securities to financial institutions and simultaneously agrees to repurchase similar (same issuer, type and coupon) securities at a later date at an agreed-upon price. During the period between the sale and repurchase, the fund will not be entitled to receive interest and principal payments on the securities sold. The fund accounts for dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. Dollar roll transactions involve the risk that the market value of the securities that the fund is required to purchase may decline below the agreed upon repurchase price of those securities.
To mitigate the counterparty credit risk on TBA transactions, mortgage dollar rolls, and other types of forward settling mortgage-backed and asset-backed security transactions, the fund whenever possible enters into a Master Securities Forward Transaction Agreement (“MSFTA”) on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The MSFTA gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the MSFTA, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the MSFTA could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
For mortgage-backed and asset-backed securities traded under a MSFTA, the collateral and margining requirements are contract specific. Collateral amounts across all transactions traded under such agreement are netted and an amount is posted from one party to the other to collateralize such obligations. Cash that has been pledged to cover the fund's collateral or margin obligations under a MSFTA, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to amortization of premium and accretion of discount of debt securities, wash sale loss deferrals, straddle loss deferrals, and derivative transactions.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/23 | Year ended
12/31/22 |
| Ordinary income (including any short-term capital gains) | $665,764 | $8,555,099 |
| Long-term capital gains | 14,820,012 | 29,587,183 |
| Total distributions | $15,485,776 | $38,142,282 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/23 | |
| Cost of investments | $341,546,015 |
| Gross appreciation | 66,277,533 |
| Gross depreciation | (24,941,329) |
| Net unrealized appreciation (depreciation) | $41,336,204 |
| Undistributed ordinary income | 3,875,682 |
| Other temporary differences | (168,501) |
| Total distributable earnings (loss) | $45,043,385 |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/23 | | Year
ended
12/31/22 |
| Initial Class | $1,322,375 | | $3,004,045 |
| Service Class | 14,163,401 | | 35,138,237 |
| Total | $15,485,776 | | $38,142,282 |
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $300 million | 0.75% |
| In excess of $300 million and up to $2.5 billion | 0.675% |
| In excess of $2.5 billion | 0.65% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this management fee reduction amounted to $50,440, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.72% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses (such as interest expenses on cash collateral held at brokers), such that total annual operating expenses do not exceed 0.76% of average daily net assets for the Initial Class shares and 1.01% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this reduction amounted to $157,142, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares as well as shareholder servicing and account maintenance activities. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. The distribution and/or service fees are computed daily and paid monthly.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2023, the fee was $2,116, which equated to 0.0005% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2023, these costs amounted to $324.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is computed daily and paid monthly. The administrative services fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.0170% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
During the year ended December 31, 2023, pursuant to a policy adopted by the Board of Trustees and designed to comply with Rule 17a-7 under the Investment Company Act of 1940 (the “Act”) and relevant guidance, the fund engaged in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) which amounted to $650,184 and $59,869, respectively. The sales transactions resulted in net realized gains (losses) of $33,651.
(4) Portfolio Securities
For the year ended December 31, 2023, purchases and sales of investments, other than purchased options with an expiration date of less than one year from the time of purchase and short-term obligations, were as follows:
| | Purchases | Sales |
| U.S. Government securities | $59,400,565 | $53,303,642 |
| Non-U.S. Government securities | 320,713,491 | 373,099,482 |
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 43,766 | $574,342 | | 55,962 | $768,600 |
| Service Class | 387,151 | 5,076,133 | | 281,584 | 3,761,654 |
| | 430,917 | $5,650,475 | | 337,546 | $4,530,254 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 103,634 | $1,322,375 | | 232,691 | $3,004,045 |
| Service Class | 1,133,072 | 14,163,401 | | 2,777,726 | 35,138,237 |
| | 1,236,706 | $15,485,776 | | 3,010,417 | $38,142,282 |
| Shares reacquired | | | | | |
| Initial Class | (322,230) | $(4,241,838) | | (306,796) | $(4,248,931) |
| Service Class | (4,817,962) | (62,248,219) | | (5,462,051) | (73,594,103) |
| | (5,140,192) | $(66,490,057) | | (5,768,847) | $(77,843,034) |
| Net change | | | | | |
| Initial Class | (174,830) | $(2,345,121) | | (18,143) | $(476,286) |
| Service Class | (3,297,739) | (43,008,685) | | (2,402,741) | (34,694,212) |
| | (3,472,569) | $(45,353,806) | | (2,420,884) | $(35,170,498) |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 14, 2024 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2023, the fund’s commitment fee and interest expense were $2,107 and $0, respectively, and are included in “Interest expense and fees” in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $8,530,707 | $201,904,283 | $199,588,373 | $(1,347) | $1,342 | $10,846,612 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $478,290 | $— |
(8) Russia and Ukraine Conflict
The fund invests in securities and/or derivative instruments that are economically tied to Russia and/or Ukraine. Escalation of the conflict between Russia and Ukraine in late February 2022 caused market volatility and disruption in the tradability of Russian securities, including closure of the local securities market, temporary restriction on securities sales by non-residents, and disruptions to clearance and payment systems. To the extent that the fund is unable to sell securities, whether due to market constraints or to the sanctions imposed on Russia by the United States and other countries, those securities are considered illiquid and the value of those securities reflects their illiquid classification. Management continues to monitor these events and to evaluate the related impacts on fund performance.
MFS Global Tactical Allocation Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Global Tactical Allocation Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Global Tactical Allocation Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 2024
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Global Tactical Allocation Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2024, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 57) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 69) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 72) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 69) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 68) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 68) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 62) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 67) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 67) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 66) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 55) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
MFS Global Tactical Allocation Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
John W. Clark, Jr. (k)
(age 56) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 55) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 56) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 47) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022) |
Amanda S. Mooradian (k)
(age 44) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 53) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 53) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
James O. Yost (k)
(age 63) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Caroselli, Jones and Otis are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
MFS Global Tactical Allocation Portfolio
Trustees and Officers - continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Congress Street, Suite 1
Boston, MA 02114-2016 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Pilar Gomez-Bravo
Steven Gorham
Andy Li
John Mitchell
Johnathan Munko
Benjamin Nastou
Jonathan Sage
Natalie Shapiro
Erich Shigley
David Shindler
Robert Spector
Erik Weisman | |
MFS Global Tactical Allocation Portfolio
Board Review of Investment Advisory Agreement
MFS Global Tactical Allocation Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2023 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2022 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2022, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 3rd quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 1st quintile for the one-year period and the 3rd quintile for the three-year period ended December 31, 2022 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In addition to considering the performance information provided in connection with the contract review meetings, the Trustees noted that, in light of the Fund’s substandard relative performance at the time of their contract review meetings in 2022, they had met at each of their regular meetings since then with MFS’ senior investment management personnel to discuss the Fund’s performance and MFS’ efforts to improve the Fund’s performance. The Trustees further noted that the Fund’s five-year performance as compared to its
MFS Global Tactical Allocation Portfolio
Board Review of Investment Advisory Agreement - continued
Broadridge performance universe improved for the period ended December 31, 2022, as compared to the prior year. Taking this information into account, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate was higher than the Broadridge expense group median and the Fund’s total expense ratio was approximately at the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $300 million and $2.5 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2023.
MFS Global Tactical Allocation Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $16,303,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 100.00% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2023
MFS® Government
Securities Portfolio
MFS® Variable Insurance Trust II
MFS® Government Securities Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Government Securities Portfolio
Portfolio structure at value (v)
Portfolio structure reflecting equivalent exposure of derivative positions (i)
Fixed income sectors (i)
| U.S. Treasury Securities | 65.2% |
| Mortgage-Backed Securities | 51.1% |
| Commercial Mortgage-Backed Securities | 3.6% |
| Asset-Backed Securities | 1.9% |
| Collateralized Debt Obligations | 1.7% |
| Municipal Bonds | 0.5% |
| Investment Grade Corporates | 0.5% |
| U.S. Government Agencies | 0.5% |
Composition including fixed income credit quality (a)(i)
| AAA | 6.2% |
| AA | 1.1% |
| A | 0.8% |
| BBB (o) | 0.0% |
| U.S. Government | 29.9% |
| Federal Agencies | 51.6% |
| Not Rated | 35.4% |
| Cash & Cash Equivalents | 10.4% |
| Other (q) | (35.4)% |
Portfolio facts
| Average Duration (d) | 6.4 |
| Average Effective Maturity (m) | 7.3 yrs. |
| (a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities and fixed income derivatives that have not been rated by any rating agency. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
| (d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move. The Average Duration calculation reflects the impact of the equivalent exposure of derivative positions, if any. |
MFS Government Securities Portfolio
Portfolio Composition - continued
| (i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
| (m) | In determining each instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening feature (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
| (q) | For purposes of this presentation, Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative. |
| (v) | For purposes of this presentation, market value of fixed income and/or equity derivatives, if any, is included in Cash & Cash Equivalents. |
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2023.
The portfolio is actively managed and current holdings may be different.
MFS Government Securities Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2023, Initial Class shares of the MFS Government Securities Portfolio (fund) provided a total return of 4.15%, while Service Class shares of the fund provided a total return of 3.86%. These compare with a return of 4.45% over the same period for the fund’s benchmark, the Bloomberg U.S. Government/Mortgage Index.
Market Environment
During the reporting period, central banks around the world had to combat the strongest inflationary pressures in four decades, fueled by the global fiscal response to the pandemic, disrupted supply chains and the dislocations to energy markets stemming from the war in Ukraine. Interest rates rose substantially, but the effects of a tighter monetary policy may not have been fully experienced yet, given that monetary policy works with long and variable lags. Strains resulting from the abrupt tightening of monetary policy began to affect some parts of the economy, most acutely among small and regional US banks, which suffered from deposit flight as depositors sought higher yields on their savings. Additionally, activity in the US housing sector has slowed as a result of higher mortgage rates. China’s abandonment of its Zero-COVID policy ushered in a brief uptick in economic activity in the world’s second-largest economy in early 2023, although its momentum soon stalled as the focus turned to the country’s highly indebted property development sector. In developed markets, consumer demand for services remained stronger than the demand for goods.
Early on, policymakers found themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, central banks focused on controlling price pressures while also confronting increasing financial stability concerns. Central banks had to juggle achieving their inflation mandates while using macroprudential tools (financial policies aimed at safeguarding the stability of the financial system) to keep banking systems liquid, a potentially difficult balancing act, and one that suggested that we may be nearing a peak in policy rates. As inflationary pressures eased toward the end of the period, financial conditions loosened in anticipation of easier monetary policy, boosting the market’s appetite for risk. Rapid advancements in artificial intelligence were a focus for investors.
Normalizing supply chains, low levels of unemployment across developed markets and signs that inflation levels have peaked were supportive factors for the macroeconomic backdrop.
Factors Affecting Performance
Relative to the Bloomberg U.S. Government/Mortgage Index, yield curve(y) positioning detracted from the fund’s relative performance. A longer relative duration(d) stance, most notably in the middle part of the reporting period, was another area of relative weakness. Bond selection within the mortgage-backed securities (MBS) agency fixed rate sector further weighed on the fund’s relative performance.
On the positive side, an underweight allocation to the treasury sector contributed to relative returns as this sector underperformed the benchmark. The fund’s allocation to both the collateralized loan obligation (CLO) and commercial mortgage-backed securities (CMBS) sectors, for which the benchmark has no exposure, also benefited relative performance.
Respectfully,
Portfolio Manager(s)
Geoffrey Schechter and Jake Stone
| (d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value. |
| (y) | A yield curve graphically depicts the yields of different maturity bonds of the same credit quality and type; a normal yield curve is upward sloping, with short-term rates lower than long-term rates. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Government Securities Portfolio
Performance Summary Through 12/31/23
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/23
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 6/12/1985 | 4.15% | 0.32% | 1.06% |
| Service Class | 8/24/2001 | 3.86% | 0.08% | 0.81% |
Comparative benchmark(s)
| Bloomberg U.S. Government/Mortgage Index (f) | 4.45% | 0.45% | 1.33% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Bloomberg U.S. Government/Mortgage Index(a) – measures the performance of debt issued by the U.S. Government, and its agencies, as well as mortgage-backed pass-through securities of Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).
It is not possible to invest directly in an index.
| (a) | Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg's licensors own all proprietary rights in the Bloomberg Indices. Bloomberg neither approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
MFS Government Securities Portfolio
Performance Summary – continued
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Government Securities Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2023 through December 31, 2023
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2023 through December 31, 2023.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/23 | Ending
Account Value
12/31/23 | Expenses
Paid During
Period (p)
7/01/23-12/31/23 |
| Initial Class | Actual | 0.58% | $1,000.00 | $1,025.02 | $2.96 |
| Hypothetical (h) | 0.58% | $1,000.00 | $1,022.28 | $2.96 |
| Service Class | Actual | 0.83% | $1,000.00 | $1,024.00 | $4.23 |
| Hypothetical (h) | 0.83% | $1,000.00 | $1,021.02 | $4.23 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS Government Securities Portfolio
Portfolio of Investments − 12/31/23
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Bonds – 89.2% |
| Asset-Backed & Securitized – 7.1% |
| 3650R Commercial Mortgage Trust, 2021-PF1, “XA”, 1.018%, 11/15/2054 (i) | | $ | 3,570,578 | $ 175,687 |
| ACREC 2021-FL1 Ltd., “AS”, FLR, 6.972% ((SOFR - 1mo. + 0.11448%) + 1.5%), 10/16/2036 (n) | | | 1,293,000 | 1,263,648 |
| ACREC 2023-FL2 LLC, “A”, FLR, 7.592% (SOFR - 1mo. + 2.23%), 2/19/2038 (n) | | | 729,883 | 729,911 |
| Arbor Realty Trust, Inc., CLO, 2021-FL1, “B”, FLR, 6.976% ((SOFR - 1mo. + 0.11448%) + 1.5%), 12/15/2035 (n) | | | 671,500 | 653,235 |
| Arbor Realty Trust, Inc., CLO, 2021-FL3, “AS”, FLR, 6.876% ((SOFR - 1mo. + 0.11448%) + 1.4%), 8/15/2034 (n) | | | 1,107,000 | 1,074,772 |
| AREIT 2022-CRE6 Trust, “AS”, FLR, 6.987% (SOFR - 30 day + 1.65%), 1/20/2037 (n) | | | 1,405,000 | 1,369,892 |
| ARI Fleet Lease Trust, 2023-B, “A2”, 6.05%, 7/15/2032 (n) | | | 261,372 | 264,276 |
| BBCMS Mortgage Trust, 2021-C10, “XA”, 1.285%, 7/15/2054 (i) | | | 3,617,208 | 224,913 |
| BBCMS Mortgage Trust, 2021-C9, “XA”, 1.609%, 2/15/2054 (i) | | | 2,359,115 | 192,372 |
| BBCMS Mortgage Trust, 2022-C18, “XA”, 0.461%, 12/15/2055 (i) | | | 3,498,939 | 127,720 |
| Benchmark 2021-B23 Mortgage Trust, “XA”, 1.266%, 2/15/2054 (i) | | | 7,588,000 | 459,667 |
| Benchmark 2021-B24 Mortgage Trust, “XA”, 1.146%, 3/15/2054 (i) | | | 4,497,828 | 239,559 |
| Benchmark 2021-B26 Mortgage Trust, “XA”, 0.884%, 6/15/2054 (i) | | | 6,470,973 | 284,711 |
| Benchmark 2021-B27 Mortgage Trust, “XA”, 1.26%, 7/15/2054 (i) | | | 5,771,594 | 356,339 |
| Benchmark 2021-B28 Mortgage Trust, “XA”, 1.273%, 8/15/2054 (i) | | | 6,732,605 | 443,130 |
| Benchmark 2021-B29 Mortgage Trust, “XA”, 1.033%, 9/15/2054 (i) | | | 7,535,190 | 378,707 |
| Benchmark 2023-V3 Mortgage Trust, “A3”, 6.362%, 7/15/2056 | | | 149,456 | 156,574 |
| Bridgecrest Lending Auto Securitization Trust, 2023-1, “A2”, 6.34%, 7/15/2026 | | | 111,000 | 111,136 |
| BSPDF 2021-FL1 Issuer Ltd., “A”, FLR, 6.676% ((SOFR - 1mo. + 0.11448%) + 1.2%), 10/15/2036 (n) | | | 607,953 | 596,727 |
| BSPDF 2021-FL1 Issuer Ltd., “AS”, FLR, 6.956% ((SOFR - 1mo. + 0.11448%) + 1.48%), 10/15/2036 (n) | | | 777,500 | 746,178 |
| BXMT 2021-FL4 Ltd., “AS”, FLR, 6.776% ((SOFR - 1mo. + 0.11448%) + 1.3%), 5/15/2038 (n) | | | 1,344,000 | 1,243,890 |
| Capital Automotive, 2020-1A, “A4”, REIT, 3.19%, 2/15/2050 (n) | | | 265,817 | 254,418 |
| Chesapeake Funding II LLC, 2023-2A, “A2”, FLR, 6.446% (SOFR - 1mo. + 1.1%), 10/15/2035 (n) | | | 578,765 | 579,257 |
| Citigroup Commercial Mortgage Trust, 2019-XA, “C7”, 0.858%, 12/15/2072 (i)(n) | | | 4,371,038 | 168,445 |
| Commercial Mortgage Pass-Through Certificates, 2021-BN31, “XA”, 1.316%, 2/15/2054 (i) | | | 5,766,773 | 387,197 |
| Commercial Mortgage Pass-Through Certificates, 2021-BN32, “XA”, 0.773%, 4/15/2054 (i) | | | 3,297,262 | 126,920 |
| CPS Auto Trust, 2019-D, “E”, 3.86%, 10/15/2025 (n) | | | 637,184 | 633,279 |
| Dell Equipment Finance Trust, 2023-1, “A2”, 5.65%, 9/22/2028 (n) | | | 691,565 | 691,651 |
| Dell Equipment Finance Trust, 2023-3, “A2”, 6.1%, 4/23/2029 (n) | | | 314,000 | 315,922 |
| DT Auto Owner Trust, 2023-1A, “A”, 5.48%, 4/15/2027 (n) | | | 249,611 | 249,144 |
| DT Auto Owner Trust, 2023-2A, “A”, 5.88%, 4/15/2027 (n) | | | 700,785 | 701,064 |
| Exeter Automobile Receivables Trust 23-3A, “A2”, 6.11%, 9/15/2025 | | | 47,915 | 47,927 |
| GLS Auto Select Receivables Trust, 2023-2A, 6.37%, 6/15/2028 (n) | | | 221,000 | 222,900 |
| LAD Auto Receivables Trust, 2022-1A, “A”, 5.21%, 6/15/2027 (n) | | | 106,687 | 106,140 |
| LAD Auto Receivables Trust, 2023-1A, “A2”, 5.68%, 10/15/2026 (n) | | | 128,453 | 128,304 |
| LoanCore 2021-CRE5 Ltd., “AS”, FLR, 7.198% ((SOFR - 1mo. + 0.11448%) + 1.75%), 7/15/2036 (n) | | | 1,110,500 | 1,093,471 |
| MF1 2021-FL5 Ltd., “AS”, FLR, 6.676% ((SOFR - 1mo. + 0.11448%) + 1.2%), 7/15/2036 (n) | | | 664,500 | 650,179 |
| MF1 2021-FL5 Ltd., “B”, FLR, 6.926% ((SOFR - 1mo. + 0.11448%) + 1.45%), 7/15/2036 (n) | | | 836,500 | 819,766 |
| Morgan Stanley Capital I Trust, 2018-H4, “XA”, 0.812%, 12/15/2051 (i) | | | 5,642,781 | 183,531 |
| Morgan Stanley Capital I Trust, 2021-L5, “XA”, 1.29%, 5/15/2054 (i) | | | 2,866,138 | 175,449 |
| Morgan Stanley Capital I Trust, 2021-L6, “XA”, 1.208%, 6/15/2054 (i) | | | 3,482,086 | 193,096 |
| Morgan Stanley Capital I Trust, 2021-L7, “XA”, 1.093%, 10/15/2054 (i) | | | 13,336,150 | 707,323 |
| Navistar Financial Dealer Note Master Owner Trust, 2023-1, “A”, 6.18%, 8/25/2028 (n) | | | 204,000 | 205,969 |
| Navistar Financial Dealer Note Master Owner Trust, 2023-1, “B”, 6.48%, 8/25/2028 (n) | | | 188,000 | 189,744 |
| PFS Financing Corp., 2023-C, “B”, 5.91%, 10/15/2028 (n) | | | 177,000 | 177,539 |
| ReadyCap Commercial Mortgage Trust, 2021-FL7, “A”, FLR, 6.67% ((SOFR - 1mo. + 0.11448%) + 1.2%), 11/25/2036 (z) | | | 463,437 | 459,579 |
| ReadyCap Commercial Mortgage Trust, 2021-FL7, “AS”, FLR, 6.97% ((SOFR - 1mo. + 0.11448%) + 1.5%), 11/25/2036 (z) | | | 206,000 | 199,382 |
| Toyota Lease Owner Trust, 2023-A, “A2”, 5.3%, 8/20/2025 (n) | | | 328,605 | 328,096 |
| Wells Fargo Commercial Mortgage Trust, 2018-C48, “XA”, 0.934%, 1/15/2052 (i)(n) | | | 3,216,890 | 115,214 |
| Wells Fargo Commercial Mortgage Trust, 2021-C60, “XA”, 1.525%, 8/15/2054 (i) | | | 1,305,024 | 98,771 |
| Westlake Automobile Receivables Trust, 2023-1A, “A2B”, FLR, 6.188% (SOFR - 1mo. + 0.85%), 6/15/2026 (n) | | | 102,190 | 102,260 |
| World Omni Select Auto Trust 2023-A, “A2B”, FLR, 6.188% (SOFR - 1mo. + 0.85%), 3/15/2027 | | | 455,703 | 456,104 |
| | | | | $21,861,085 |
MFS Government Securities Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Consumer Services – 0.2% |
| Conservation Fund, 3.474%, 12/15/2029 | | $ | 563,000 | $ 496,604 |
| Industrial – 0.0% |
| Howard University, Washington D.C., AGM, 2.516%, 10/01/2025 | | $ | 147,000 | $ 141,691 |
| Medical & Health Technology & Services – 0.3% |
| ProMedica Toledo Hospital, “B”, AGM, 5.325%, 11/15/2028 | | $ | 596,000 | $ 594,746 |
| ProMedica Toledo Hospital, “B”, AGM, 5.75%, 11/15/2038 | | | 246,000 | 244,347 |
| | | | | $839,093 |
| Mortgage-Backed – 50.9% | |
| Fannie Mae, 4.5%, 5/01/2025 - 11/25/2042 | | $ | 1,932,962 | $ 1,932,194 |
| Fannie Mae, 3%, 11/01/2028 - 5/25/2053 | | | 5,933,981 | 5,525,574 |
| Fannie Mae, 6.5%, 9/01/2031 - 10/01/2037 | | | 245,168 | 255,774 |
| Fannie Mae, 2.5%, 11/01/2031 - 10/01/2046 | | | 667,875 | 606,535 |
| Fannie Mae, 3.5%, 12/25/2031 - 2/25/2036 (i) | | | 229,481 | 20,066 |
| Fannie Mae, 3%, 2/25/2033 (i) | | | 285,816 | 24,019 |
| Fannie Mae, 3.548%, 6/25/2033 | | | 509,827 | 490,980 |
| Fannie Mae, 3.5%, 8/15/2033 - 6/25/2048 | | | 5,086,184 | 4,763,637 |
| Fannie Mae, 5.5%, 10/01/2033 - 3/01/2038 | | | 2,534,508 | 2,610,015 |
| Fannie Mae, 5%, 11/01/2033 - 3/01/2041 | | | 1,831,604 | 1,860,353 |
| Fannie Mae, 6%, 8/01/2034 - 7/01/2037 | | | 281,004 | 292,565 |
| Fannie Mae, 5.902%, 5/15/2036 | | | 167,206 | 165,939 |
| Fannie Mae, 4%, 9/01/2040 - 2/01/2045 | | | 6,417,245 | 6,233,806 |
| Fannie Mae, 1.75%, 10/25/2041 | | | 543,868 | 501,968 |
| Fannie Mae, 2.75%, 9/25/2042 | | | 237,410 | 224,141 |
| Fannie Mae, 5.801%, 12/25/2042 | | | 55,166 | 54,392 |
| Fannie Mae, 2.25%, 7/25/2043 | | | 101,601 | 88,187 |
| Fannie Mae, 2%, 5/25/2044 - 4/25/2046 | | | 292,252 | 267,064 |
| Fannie Mae, 5.751%, 12/25/2045 | | | 102,070 | 98,745 |
| Fannie Mae, UMBS, 2%, 10/01/2036 - 4/01/2052 | | | 14,637,088 | 12,426,521 |
| Fannie Mae, UMBS, 2.5%, 7/01/2037 - 5/01/2053 | | | 18,670,848 | 16,121,863 |
| Fannie Mae, UMBS, 5%, 6/01/2038 - 10/01/2053 | | | 1,928,680 | 1,911,085 |
| Fannie Mae, UMBS, 5.5%, 8/01/2038 | | | 132,239 | 134,128 |
| Fannie Mae, UMBS, 1.5%, 2/01/2042 | | | 62,656 | 51,924 |
| Fannie Mae, UMBS, 3%, 6/01/2051 - 7/01/2052 | | | 5,455,426 | 4,847,392 |
| Fannie Mae, UMBS, 4%, 8/01/2051 | | | 472,329 | 452,605 |
| Fannie Mae, UMBS, 3.5%, 5/01/2052 | | | 349,194 | 321,555 |
| Fannie Mae, UMBS, 4.5%, 8/01/2052 - 9/01/2052 | | | 603,986 | 587,400 |
| Fannie Mae, UMBS, 6%, 2/01/2053 - 11/01/2053 | | | 3,970,068 | 4,038,892 |
| Fannie Mae, UMBS, 6.5%, 8/01/2053 | | | 342,059 | 350,514 |
| Freddie Mac, 0.904%, 4/25/2024 (i) | | | 8,337,007 | 10,493 |
| Freddie Mac, 0.602%, 7/25/2024 (i) | | | 11,884,968 | 23,382 |
| Freddie Mac, 3.064%, 8/25/2024 | | | 1,444,866 | 1,422,561 |
| Freddie Mac, 4.5%, 9/01/2024 - 5/01/2042 | | | 1,144,232 | 1,133,122 |
| Freddie Mac, 2.67%, 12/25/2024 | | | 3,924,000 | 3,836,014 |
| Freddie Mac, 4%, 7/01/2025 - 4/01/2044 | | | 741,885 | 718,834 |
| Freddie Mac, 1.366%, 3/25/2027 (i) | | | 1,030,000 | 40,161 |
| Freddie Mac, 0.57%, 7/25/2027 (i) | | | 28,843,628 | 489,707 |
| Freddie Mac, 0.418%, 8/25/2027 (i) | | | 23,683,386 | 313,866 |
| Freddie Mac, 0.294%, 1/25/2028 (i) | | | 39,845,094 | 442,942 |
| Freddie Mac, 0.304%, 1/25/2028 (i) | | | 17,119,512 | 196,476 |
| Freddie Mac, 0.134%, 2/25/2028 (i) | | | 48,495,996 | 277,223 |
| Freddie Mac, 0.118%, 4/25/2028 (i) | | | 31,406,828 | 174,399 |
| Freddie Mac, 3%, 6/15/2028 - 2/25/2059 | | | 6,417,982 | 5,880,752 |
| Freddie Mac, 3.5%, 6/15/2028 - 10/25/2058 | | | 8,717,587 | 8,210,406 |
MFS Government Securities Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Mortgage-Backed – continued | |
| Freddie Mac, 5.975%, 3/25/2029 | | $ | 491,619 | $ 491,132 |
| Freddie Mac, 1.09%, 7/25/2029 (i) | | | 4,405,737 | 217,550 |
| Freddie Mac, 5.965%, 7/25/2029 - 9/25/2029 | | | 1,534,320 | 1,531,861 |
| Freddie Mac, 1.142%, 8/25/2029 (i) | | | 7,625,982 | 397,385 |
| Freddie Mac, 1.799%, 4/25/2030 (i) | | | 1,602,831 | 153,302 |
| Freddie Mac, 1.868%, 4/25/2030 (i) | | | 4,034,514 | 388,520 |
| Freddie Mac, 1.665%, 5/25/2030 (i) | | | 2,174,913 | 193,839 |
| Freddie Mac, 1.797%, 5/25/2030 (i) | | | 4,905,689 | 463,504 |
| Freddie Mac, 1.341%, 6/25/2030 (i) | | | 1,983,331 | 144,319 |
| Freddie Mac, 1.599%, 8/25/2030 (i) | | | 1,814,781 | 160,342 |
| Freddie Mac, 1.169%, 9/25/2030 (i) | | | 1,149,690 | 75,178 |
| Freddie Mac, 1.08%, 11/25/2030 (i) | | | 2,249,951 | 140,176 |
| Freddie Mac, 4.94%, 11/25/2030 | | | 318,263 | 327,429 |
| Freddie Mac, 0.327%, 1/25/2031 (i) | | | 8,714,407 | 153,848 |
| Freddie Mac, 0.78%, 1/25/2031 (i) | | | 3,359,280 | 154,448 |
| Freddie Mac, 0.935%, 1/25/2031 (i) | | | 2,545,825 | 138,864 |
| Freddie Mac, 0.514%, 3/25/2031 (i) | | | 6,914,450 | 201,234 |
| Freddie Mac, 0.732%, 3/25/2031 (i) | | | 2,967,667 | 132,391 |
| Freddie Mac, 1.216%, 5/25/2031 (i) | | | 1,210,235 | 88,553 |
| Freddie Mac, 0.937%, 7/25/2031 (i) | | | 1,944,368 | 113,517 |
| Freddie Mac, 0.508%, 8/25/2031 (i) | | | 2,463,629 | 77,397 |
| Freddie Mac, 0.536%, 9/25/2031 (i) | | | 8,016,720 | 268,456 |
| Freddie Mac, 0.855%, 9/25/2031 (i) | | | 7,432,958 | 394,478 |
| Freddie Mac, 0.349%, 11/25/2031 (i) | | | 11,978,818 | 279,460 |
| Freddie Mac, 0.498%, 12/25/2031 (i) | | | 11,887,771 | 382,538 |
| Freddie Mac, 0.568%, 12/25/2031 (i) | | | 1,981,491 | 71,474 |
| Freddie Mac, 6.5%, 8/01/2032 - 5/01/2037 | | | 148,206 | 154,914 |
| Freddie Mac, 0.128%, 8/25/2033 (i) | | | 10,770,884 | 156,306 |
| Freddie Mac, 5%, 5/01/2034 - 12/01/2044 | | | 1,059,375 | 1,071,975 |
| Freddie Mac, 6%, 8/01/2034 - 10/01/2038 | | | 1,075,005 | 1,118,404 |
| Freddie Mac, 5.5%, 8/01/2035 - 6/01/2041 | | | 673,686 | 694,751 |
| Freddie Mac, 5.5%, 2/15/2036 (i) | | | 73,297 | 13,134 |
| Freddie Mac, 4.5%, 12/15/2040 (i) | | | 16,897 | 1,359 |
| Freddie Mac, 1.75%, 8/15/2041 | | | 193,874 | 179,305 |
| Freddie Mac, 3.25%, 11/25/2061 | | | 1,978,993 | 1,743,056 |
| Freddie Mac Multi-Family Structured Pass-Through Certificates K-511, “A2”, 4.86%, 10/25/2028 | | | 210,439 | 214,846 |
| Freddie Mac, UMBS, 6.5%, 8/01/2032 | | | 13,128 | 13,569 |
| Freddie Mac, UMBS, 5.5%, 4/01/2038 - 5/01/2053 | | | 472,806 | 480,070 |
| Freddie Mac, UMBS, 2%, 2/01/2042 - 3/01/2052 | | | 13,133,415 | 10,774,946 |
| Freddie Mac, UMBS, 3.5%, 12/01/2046 - 5/01/2052 | | | 313,970 | 292,187 |
| Freddie Mac, UMBS, 3%, 7/01/2050 - 6/01/2053 | | | 4,140,720 | 3,664,765 |
| Freddie Mac, UMBS, 2.5%, 2/01/2051 - 9/01/2052 | | | 4,162,851 | 3,549,731 |
| Freddie Mac, UMBS, 1.5%, 5/01/2051 - 10/01/2051 | | | 1,697,539 | 1,324,769 |
| Freddie Mac, UMBS, 4%, 5/01/2052 - 8/01/2052 | | | 755,102 | 720,304 |
| Freddie Mac, UMBS, 5%, 3/01/2053 - 8/01/2053 | | | 112,445 | 111,242 |
| Ginnie Mae, 5.5%, 7/15/2033 - 2/20/2053 | | | 2,534,254 | 2,558,919 |
| Ginnie Mae, 5.675%, 8/20/2034 | | | 200,257 | 205,074 |
| Ginnie Mae, 4%, 5/16/2039 - 7/20/2041 | | | 604,028 | 589,382 |
| Ginnie Mae, 4.5%, 8/15/2039 - 9/20/2052 | | | 3,537,986 | 3,484,075 |
| Ginnie Mae, 5.922%, 10/20/2039 | | | 111,550 | 110,955 |
| Ginnie Mae, 3.5%, 10/20/2041 (i) | | | 75,833 | 2,539 |
| Ginnie Mae, 3.5%, 12/15/2041 - 6/20/2052 | | | 3,562,636 | 3,349,916 |
| Ginnie Mae, 2.5%, 6/20/2042 - 4/20/2052 | | | 5,886,514 | 5,147,272 |
| Ginnie Mae, 4%, 8/16/2042 (i) | | | 137,871 | 19,755 |
| Ginnie Mae, 2.25%, 9/20/2043 | | | 70,618 | 68,232 |
| Ginnie Mae, 3%, 4/20/2045 - 10/20/2052 | | | 4,227,261 | 3,857,741 |
| Ginnie Mae, 2%, 1/20/2052 - 3/20/2052 | | | 6,378,182 | 5,396,086 |
MFS Government Securities Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Mortgage-Backed – continued | |
| Ginnie Mae, 5%, 1/20/2053 - 9/20/2053 | | $ | 3,928,233 | $ 3,900,497 |
| Ginnie Mae, 0.584%, 2/16/2059 (i) | | | 713,301 | 21,854 |
| Ginnie Mae, TBA, 3%, 1/15/2054 | | | 350,000 | 316,859 |
| Ginnie Mae, TBA, 6%, 1/15/2054 | | | 425,000 | 432,122 |
| Ginnie Mae, TBA, 6.5%, 1/15/2054 | | | 900,000 | 921,270 |
| UMBS, TBA, 2.5%, 1/16/2054 | | | 1,050,000 | 893,156 |
| UMBS, TBA, 2%, 1/25/2054 | | | 1,425,000 | 1,164,492 |
| | | | | $156,291,195 |
| Municipals – 0.6% |
| Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., Taxable, “B”, 3%, 6/01/2046 | | $ | 615,000 | $ 559,683 |
| Massachusetts Educational Financing Authority, Education Loan Rev., Taxable, “A”, 2.682%, 7/01/2027 | | | 335,000 | 313,342 |
| Michigan Finance Authority Tobacco Settlement Asset-Backed Rev., Taxable (2006 Sold Tobacco Receipts), “A-1”, 2.326%, 6/01/2030 | | | 102,998 | 101,087 |
| Port of Oakland, CA, Senior Lien Refunding Rev., Taxable, “R”, 1.517%, 5/01/2026 | | | 295,000 | 274,608 |
| West Virginia Tobacco Settlement Financing Authority Asset-Backed Refunding, Taxable, “A-1”, 1.497%, 6/01/2024 | | | 280,000 | 275,454 |
| West Virginia Tobacco Settlement Financing Authority Asset-Backed Refunding, Taxable, “A-1”, 1.647%, 6/01/2025 | | | 225,000 | 213,620 |
| | | | | $1,737,794 |
| U.S. Government Agencies and Equivalents – 0.5% |
| Small Business Administration, 4.77%, 4/01/2024 | | $ | 10,801 | $ 10,748 |
| Small Business Administration, 5.52%, 6/01/2024 | | | 3,944 | 3,934 |
| Small Business Administration, 4.99%, 9/01/2024 | | | 1,419 | 1,409 |
| Small Business Administration, 5.11%, 4/01/2025 | | | 16,799 | 16,606 |
| Small Business Administration, 2.21%, 2/01/2033 | | | 274,875 | 253,583 |
| Small Business Administration, 2.22%, 3/01/2033 | | | 425,738 | 391,946 |
| Small Business Administration, 3.15%, 7/01/2033 | | | 411,832 | 390,865 |
| Small Business Administration, 3.16%, 8/01/2033 | | | 259,256 | 245,776 |
| Small Business Administration, 3.62%, 9/01/2033 | | | 148,552 | 143,019 |
| | | | | $1,457,886 |
| U.S. Treasury Obligations – 29.6% |
| U.S. Treasury Bonds, 6%, 2/15/2026 | | $ | 2,699,000 | $ 2,793,992 |
| U.S. Treasury Bonds, 6.75%, 8/15/2026 | | | 1,862,000 | 1,984,776 |
| U.S. Treasury Bonds, 6.375%, 8/15/2027 | | | 326,000 | 352,182 |
| U.S. Treasury Bonds, 4.5%, 8/15/2039 | | | 1,287,500 | 1,362,437 |
| U.S. Treasury Bonds, 3.125%, 2/15/2043 | | | 8,176,700 | 6,989,162 |
| U.S. Treasury Bonds, 2.875%, 5/15/2043 | | | 13,519,500 | 11,098,136 |
| U.S. Treasury Bonds, 2.5%, 2/15/2045 (f) | | | 14,059,000 | 10,645,848 |
| U.S. Treasury Notes, 2.5%, 5/15/2024 | | | 5,385,000 | 5,332,412 |
| U.S. Treasury Notes, 3.875%, 3/31/2025 | | | 2,660,000 | 2,636,621 |
| U.S. Treasury Notes, 2%, 8/15/2025 | | | 438,000 | 421,489 |
| U.S. Treasury Notes, 3.5%, 9/15/2025 | | | 3,258,000 | 3,210,021 |
| U.S. Treasury Notes, 4.875%, 11/30/2025 | | | 4,984,000 | 5,035,592 |
| U.S. Treasury Notes, 2.625%, 12/31/2025 | | | 2,800,000 | 2,713,375 |
| U.S. Treasury Notes, 4.25%, 12/31/2025 | | | 11,354,000 | 11,351,782 |
| U.S. Treasury Notes, 3.625%, 3/31/2028 | | | 9,593,000 | 9,488,451 |
| U.S. Treasury Notes, 1.5%, 2/15/2030 | | | 3,800,000 | 3,310,602 |
| U.S. Treasury Notes, 4.125%, 8/31/2030 | | | 5,164,000 | 5,228,752 |
| U.S. Treasury Notes, 1.625%, 5/15/2031 | | | 6,239,000 | 5,351,649 |
| U.S. Treasury Notes, 1.375%, 11/15/2031 | | | 2,119,500 | 1,759,682 |
| | | | | $91,066,961 |
| Total Bonds (Identified Cost, $289,084,566) | | $273,892,309 |
MFS Government Securities Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Investment Companies (h) – 8.8% |
| Money Market Funds – 8.8% | |
| MFS Institutional Money Market Portfolio, 5.42% (v) (Identified Cost, $26,996,566) | | | 26,997,800 | $ 27,003,199 |
| Other Assets, Less Liabilities – 2.0% | | 6,155,114 |
| Net Assets – 100.0% | $307,050,622 |
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts. |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $27,003,199 and $273,892,309, respectively. |
| (i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. |
| (n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $15,675,291, representing 5.1% of net assets. |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
| (z) | Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities: |
| Restricted Securities | Acquisition
Date | Cost | Value |
| ReadyCap Commercial Mortgage Trust, 2021-FL7, “A”, FLR, 6.67% ((SOFR - 1mo. + 0.11448%) + 1.2%), 11/25/2036 | 11/12/21 | $463,437 | $459,579 |
| ReadyCap Commercial Mortgage Trust, 2021-FL7, “AS”, FLR, 6.97% ((SOFR - 1mo. + 0.11448%) + 1.5%), 11/25/2036 | 11/12/21 | 206,000 | 199,382 |
| Total Restricted Securities | | | $658,961 |
| % of Net assets | | | 0.2% |
| The following abbreviations are used in this report and are defined: |
| AGM | Assured Guaranty Municipal |
| CLO | Collateralized Loan Obligation |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| REIT | Real Estate Investment Trust |
| SOFR | Secured Overnight Financing Rate |
| TBA | To Be Announced |
| UMBS | Uniform Mortgage-Backed Security |
| Derivative Contracts at 12/31/23 |
| Futures Contracts |
| Description | Long/
Short | Currency | Contracts | Notional
Amount | Expiration
Date | Value/Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| Interest Rate Futures | | |
| U.S. Treasury Bond 30 yr | Long | USD | 6 | $749,625 | March – 2024 | $29,227 |
| U.S. Treasury Note 10 yr | Long | USD | 577 | 65,137,891 | March – 2024 | 2,013,125 |
| U.S. Treasury Note 2 yr | Long | USD | 257 | 52,919,914 | March – 2024 | 216,855 |
| U.S. Treasury Ultra Bond 30 yr | Long | USD | 28 | 3,740,625 | March – 2024 | 242,340 |
| | | | | | | $2,501,547 |
MFS Government Securities Portfolio
Portfolio of Investments – continued
| Futures Contracts - continued |
| Description | Long/
Short | Currency | Contracts | Notional
Amount | Expiration
Date | Value/Unrealized
Appreciation
(Depreciation) |
| Liability Derivatives |
| Interest Rate Futures | | |
| U.S. Treasury Note 5 yr | Short | USD | 8 | $870,188 | March – 2024 | $(9,661) |
| U.S. Treasury Ultra Note 10 yr | Short | USD | 111 | 13,099,734 | March – 2024 | (342,868) |
| | | | | | | $(352,529) |
At December 31, 2023, the fund had liquid securities with an aggregate value of $1,650,761 to cover any collateral or margin obligations for certain derivative contracts.
See Notes to Financial Statements
MFS Government Securities Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/23Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $289,084,566) | $273,892,309 |
| Investments in affiliated issuers, at value (identified cost, $26,996,566) | 27,003,199 |
| Receivables for | |
| Net daily variation margin on open futures contracts | 26,897 |
| Investments sold | 19,934,285 |
| TBA sale commitments | 5,696,764 |
| Fund shares sold | 195 |
| Interest | 1,547,697 |
| Other assets | 1,795 |
| Total assets | $328,103,141 |
| Liabilities | |
| Payables for | |
| Investments purchased | $11,347,920 |
| TBA purchase commitments | 9,367,462 |
| Fund shares reacquired | 242,616 |
| Payable to affiliates | |
| Investment adviser | 27,754 |
| Administrative services fee | 532 |
| Shareholder servicing costs | 7 |
| Distribution and/or service fees | 3,025 |
| Payable for independent Trustees' compensation | 294 |
| Accrued expenses and other liabilities | 62,909 |
| Total liabilities | $21,052,519 |
| Net assets | $307,050,622 |
| Net assets consist of | |
| Paid-in capital | $363,074,235 |
| Total distributable earnings (loss) | (56,023,613) |
| Net assets | $307,050,622 |
| Shares of beneficial interest outstanding | 28,301,416 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $196,873,470 | 18,115,540 | $10.87 |
| Service Class | 110,177,152 | 10,185,876 | 10.82 |
See Notes to Financial Statements
MFS Government Securities Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/23 | |
| Net investment income (loss) | |
| Income | |
| Interest | $10,144,355 |
| Dividends from affiliated issuers | 1,335,873 |
| Other | 122 |
| Total investment income | $11,480,350 |
| Expenses | |
| Management fee | $1,712,665 |
| Distribution and/or service fees | 273,980 |
| Shareholder servicing costs | 1,951 |
| Administrative services fee | 55,220 |
| Independent Trustees' compensation | 7,666 |
| Custodian fee | 21,082 |
| Audit and tax fees | 67,406 |
| Legal fees | 1,622 |
| Miscellaneous | 24,306 |
| Total expenses | $2,165,898 |
| Reduction of expenses by investment adviser | (74,125) |
| Net expenses | $2,091,773 |
| Net investment income (loss) | $9,388,577 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $(6,330,650) |
| Affiliated issuers | (41) |
| Futures contracts | (4,064,541) |
| Net realized gain (loss) | $(10,395,232) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $10,431,703 |
| Affiliated issuers | 2,782 |
| Futures contracts | 2,491,422 |
| Net unrealized gain (loss) | $12,925,907 |
| Net realized and unrealized gain (loss) | $2,530,675 |
| Change in net assets from operations | $11,919,252 |
See Notes to Financial Statements
MFS Government Securities Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/23 | 12/31/22 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $9,388,577 | $3,958,798 |
| Net realized gain (loss) | (10,395,232) | (13,718,673) |
| Net unrealized gain (loss) | 12,925,907 | (40,075,253) |
| Change in net assets from operations | $11,919,252 | $(49,835,128) |
| Total distributions to shareholders | $(4,383,441) | $(6,872,092) |
| Change in net assets from fund share transactions | $(21,689,848) | $(51,340,602) |
| Total change in net assets | $(14,154,037) | $(108,047,822) |
| Net assets | | |
| At beginning of period | 321,204,659 | 429,252,481 |
| At end of period | $307,050,622 | $321,204,659 |
See Notes to Financial Statements
MFS Government Securities Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $10.60 | $12.34 | $12.86 | $12.45 | $12.04 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.33 | $0.13 | $0.16 | $0.27 | $0.31 |
| Net realized and unrealized gain (loss) | 0.10 | (1.63) | (0.40) | 0.52 | 0.48 |
| Total from investment operations | $0.43 | $(1.50) | $(0.24) | $0.79 | $0.79 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.16) | $(0.24) | $(0.28) | $(0.38) | $(0.38) |
| Net asset value, end of period (x) | $10.87 | $10.60 | $12.34 | $12.86 | $12.45 |
| Total return (%) (k)(r)(s)(x) | 4.15 | (12.26) | (1.89) | 6.38 | 6.53 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.61 | 0.62 | 0.61 | 0.61 | 0.60 |
| Expenses after expense reductions | 0.58 | 0.58 | 0.58 | 0.58 | 0.58 |
| Net investment income (loss) | 3.10 | 1.19 | 1.29 | 2.11 | 2.53 |
| Portfolio turnover | 142 | 200 | 314 | 154 | 47 |
| Net assets at end of period (000 omitted) | $196,873 | $208,332 | $276,951 | $290,413 | $298,414 |
| Supplemental Ratios (%): | | | | | |
| Portfolio turnover (excluding TBA transactions) (e) | 63 | — | — | — | — |
| Service Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $10.55 | $12.27 | $12.79 | $12.38 | $11.96 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.30 | $0.10 | $0.13 | $0.24 | $0.28 |
| Net realized and unrealized gain (loss) | 0.10 | (1.62) | (0.40) | 0.52 | 0.48 |
| Total from investment operations | $0.40 | $(1.52) | $(0.27) | $0.76 | $0.76 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.13) | $(0.20) | $(0.25) | $(0.35) | $(0.34) |
| Net asset value, end of period (x) | $10.82 | $10.55 | $12.27 | $12.79 | $12.38 |
| Total return (%) (k)(r)(s)(x) | 3.86 | (12.45) | (2.14) | 6.12 | 6.35 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.86 | 0.87 | 0.86 | 0.86 | 0.85 |
| Expenses after expense reductions | 0.83 | 0.83 | 0.83 | 0.83 | 0.83 |
| Net investment income (loss) | 2.86 | 0.94 | 1.04 | 1.86 | 2.27 |
| Portfolio turnover | 142 | 200 | 314 | 154 | 47 |
| Net assets at end of period (000 omitted) | $110,177 | $112,873 | $152,301 | $160,196 | $164,201 |
| Supplemental Ratios (%): | | | | | |
| Portfolio turnover (excluding TBA transactions) (e) | 63 | — | — | — | — |
See Notes to Financial Statements
MFS Government Securities Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (e) | Beginning with the period ending December 31, 2023, portfolio turnover rates excluding TBA transactions are being added as supplemental data. Refer to Note 2 for more information on TBA transactions and mortgage dollar rolls. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS Government Securities Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Government Securities Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Open-end investment companies are generally valued at net asset value per share.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to
MFS Government Securities Portfolio
Notes to Financial Statements - continued
determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments, such as futures contracts. The following is a summary of the levels used as of December 31, 2023 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | $— | $92,524,847 | $— | $92,524,847 |
| Municipal Bonds | — | 1,737,794 | — | 1,737,794 |
| U.S. Corporate Bonds | — | 1,477,388 | — | 1,477,388 |
| Residential Mortgage-Backed Securities | — | 156,291,195 | — | 156,291,195 |
| Commercial Mortgage-Backed Securities | — | 10,896,137 | — | 10,896,137 |
| Asset-Backed Securities (including CDOs) | — | 10,964,948 | — | 10,964,948 |
| Mutual Funds | 27,003,199 | — | — | 27,003,199 |
| Total | $27,003,199 | $273,892,309 | $— | $300,895,508 |
| Other Financial Instruments | | | | |
| Futures Contracts – Assets | $2,501,547 | $— | $— | $2,501,547 |
| Futures Contracts – Liabilities | (352,529) | — | — | (352,529) |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives — The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were futures contracts. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily fluctuation in the price for that type of future exceeds the daily limit set by the exchange. The fund's period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at December 31, 2023 as reported in the Statement of Assets and Liabilities:
| | | Fair Value (a) |
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Interest Rate | Futures Contracts | $2,501,547 | $(352,529) |
(a) Values presented in this table for futures contracts correspond to the values reported in the Portfolio of Investments. Only the current day net variation margin for futures contracts is reported separately within the Statement of Assets and Liabilities.
MFS Government Securities Portfolio
Notes to Financial Statements - continued
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended December 31, 2023 as reported in the Statement of Operations:
| Risk | Futures
Contracts |
| Interest Rate | $(4,064,541) |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended December 31, 2023 as reported in the Statement of Operations:
| Risk | Futures
Contracts |
| Interest Rate | $2,491,422 |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a credit support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
Futures Contracts — The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund's maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Mortgage-Backed/Asset-Backed Securities — The fund invests a significant portion of its assets in asset-backed and/or mortgage-backed securities. For these securities, the value of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the underlying assets or collateral. Enforcing rights, if any, against the underlying assets or collateral may be difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae.
MFS Government Securities Portfolio
Notes to Financial Statements - continued
Stripped Mortgage-Backed Securities — The fund may invest in stripped mortgage-backed securities which are typically issued by the U.S. Government, its agencies and instrumentalities. Stripped mortgage-backed securities result when a mortgaged-backed security is stripped into two distinct classes, one which receives the principal cash flows only (POs) and one which receives the interest cash flows only (IOs) on a pool of mortgage assets. A faster than anticipated rate of prepayments on the underlying pool of mortgage assets, which is more likely to occur in a declining interest rate environment, increases the risk of loss on the IO.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Interest payments received in additional securities are recorded on the ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Investment transactions are recorded on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may purchase or sell mortgage-backed securities on a “To Be Announced” (TBA) basis. A TBA transaction is subject to extended settlement and typically does not designate the actual security to be delivered, but instead includes an approximate principal amount. The price of the TBA security and the date that it will be settled are fixed at the time the transaction is negotiated. The value of the security varies with market fluctuations and no interest accrues to the fund until settlement takes place. TBA purchase and sale commitments are held at carrying amount, which approximates fair value and are categorized as level 2 within the fair value hierarchy and included in TBA purchase and TBA sale commitments in the Statement of Assets and Liabilities, as applicable. Losses may arise as a result of changes in the value of the TBA investment prior to settlement date or due to counterparty non-performance.
The fund may also enter into mortgage dollar rolls, typically TBA dollar rolls, in which the fund sells TBA mortgage-backed securities to financial institutions and simultaneously agrees to repurchase similar (same issuer, type and coupon) securities at a later date at an agreed-upon price. During the period between the sale and repurchase, the fund will not be entitled to receive interest and principal payments on the securities sold. The fund accounts for dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. As such, these transactions may result in an increase to the fund’s portfolio turnover rate. Portfolio turnover rates including and excluding TBA transactions are presented in the Financial Highlights. Dollar roll transactions involve the risk that the market value of the securities that the fund is required to purchase may decline below the agreed upon repurchase price of those securities.
To mitigate the counterparty credit risk on TBA transactions, mortgage dollar rolls, and other types of forward settling mortgage-backed and asset-backed security transactions, the fund whenever possible enters into a Master Securities Forward Transaction Agreement (“MSFTA”) on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The MSFTA gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the MSFTA, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the MSFTA could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
For mortgage-backed and asset-backed securities traded under a MSFTA, the collateral and margining requirements are contract specific. Collateral amounts across all transactions traded under such agreement are netted and an amount is posted from one party to the other to collateralize such obligations. Cash that has been pledged to cover the fund's collateral or margin obligations under a MSFTA, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open
MFS Government Securities Portfolio
Notes to Financial Statements - continued
tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to amortization of premium and accretion of discount of debt securities, wash sale loss deferrals, and derivative transactions.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/23 | Year ended
12/31/22 |
| Ordinary income (including any short-term capital gains) | $4,383,441 | $6,872,092 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/23 | |
| Cost of investments | $320,613,800 |
| Gross appreciation | 2,417,087 |
| Gross depreciation | (19,986,361) |
| Net unrealized appreciation (depreciation) | $(17,569,274) |
| Undistributed ordinary income | 10,092,163 |
| Capital loss carryforwards | (48,546,502) |
| Total distributable earnings (loss) | $(56,023,613) |
As of December 31, 2023, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(18,126,282) |
| Long-Term | (30,420,220) |
| Total | $(48,546,502) |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| Initial Class | $3,047,721 | | $4,703,417 |
| Service Class | 1,335,720 | | 2,168,675 |
| Total | $4,383,441 | | $6,872,092 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.55% |
| In excess of $1 billion | 0.50% |
MFS Government Securities Portfolio
Notes to Financial Statements - continued
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this management fee reduction amounted to $39,829, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.54% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.58% of average daily net assets for the Initial Class shares and 0.83% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this reduction amounted to $34,296, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares as well as shareholder servicing and account maintenance activities. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. The distribution and/or service fees are computed daily and paid monthly.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2023, the fee was $1,422, which equated to 0.0005% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2023, these costs amounted to $529.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is computed daily and paid monthly. The administrative services fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.0177% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
(4) Portfolio Securities
For the year ended December 31, 2023, purchases and sales of investments, other than short-term obligations, were as follows:
| | Purchases | Sales |
| U.S. Government securities | $398,859,983 | $435,101,778 |
| Non-U.S. Government securities | 9,767,757 | 11,801,250 |
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
MFS Government Securities Portfolio
Notes to Financial Statements - continued
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 537,335 | $5,740,992 | | 357,915 | $3,946,483 |
| Service Class | 926,851 | 9,813,647 | | 435,133 | 4,773,024 |
| | 1,464,186 | $15,554,639 | | 793,048 | $8,719,507 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 293,332 | $3,047,721 | | 426,420 | $4,703,417 |
| Service Class | 129,055 | 1,335,720 | | 197,511 | 2,168,675 |
| | 422,387 | $4,383,441 | | 623,931 | $6,872,092 |
| Shares reacquired | | | | | |
| Initial Class | (2,366,668) | $(24,938,891) | | (3,568,112) | $(40,477,052) |
| Service Class | (1,571,958) | (16,689,037) | | (2,340,014) | (26,455,149) |
| | (3,938,626) | $(41,627,928) | | (5,908,126) | $(66,932,201) |
| Net change | | | | | |
| Initial Class | (1,536,001) | $(16,150,178) | | (2,783,777) | $(31,827,152) |
| Service Class | (516,052) | (5,539,670) | | (1,707,370) | (19,513,450) |
| | (2,052,053) | $(21,689,848) | | (4,491,147) | $(51,340,602) |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio and the MFS Conservative Allocation Portfolio were the owners of record of approximately 31% and 9%, respectively, of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 14, 2024 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2023, the fund’s commitment fee and interest expense were $1,628 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $15,359,601 | $175,135,345 | $163,494,488 | $(41) | $2,782 | $27,003,199 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $1,335,873 | $— |
MFS Government Securities Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Government Securities Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Government Securities Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 2024
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Government Securities Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2024, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 57) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 69) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 72) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 69) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 68) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 68) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 62) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 67) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 67) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 66) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 55) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
MFS Government Securities Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
John W. Clark, Jr. (k)
(age 56) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 55) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 56) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 47) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022) |
Amanda S. Mooradian (k)
(age 44) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 53) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 53) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
James O. Yost (k)
(age 63) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Caroselli, Jones and Otis are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
MFS Government Securities Portfolio
Trustees and Officers - continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Congress Street, Suite 1
Boston, MA 02114-2016 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Geoffrey Schechter
Jake Stone | |
MFS Government Securities Portfolio
Board Review of Investment Advisory Agreement
MFS Government Securities Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2023 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2022 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2022, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 3rd quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund's Initial Class shares was in the 4th quintile for each of the one- and three-year periods ended December 31, 2022 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS Government Securities Portfolio
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each approximately at the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2023.
MFS Government Securities Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
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Annual Report
December 31, 2023
MFS® High Yield Portfolio
MFS® Variable Insurance Trust II
MFS® High Yield Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
Portfolio structure (i)
Top five industries (i)
| Cable TV | 8.7% |
| Medical & Health Technology & Services | 5.5% |
| Financial Institutions | 4.8% |
| Midstream | 4.7% |
| Consumer Services | 4.4% |
Composition including fixed income credit quality (a)(i)
| BBB | 1.4% |
| BB | 40.4% |
| B | 40.5% |
| CCC | 14.0% |
| C (o) | 0.0% |
| U.S. Government | 0.5% |
| Not Rated | 0.2% |
| Non-Fixed Income | 0.2% |
| Cash & Cash Equivalents | 2.6% |
| Other | 0.2% |
Portfolio facts
| Average Duration (d) | 3.1 |
| Average Effective Maturity (m) | 4.5 yrs. |
| (a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. Not Rated includes fixed income securities and fixed income derivatives that have not been rated by any rating agency. Non-Fixed Income includes equity securities (including convertible bonds and equity derivatives), ETFs and Options on ETFs, and/or commodity-linked derivatives. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
| (d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move. The Average Duration calculation reflects the impact of the equivalent exposure of derivative positions, if any. |
| (i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
| (m) | In determining each instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening feature (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of December 31, 2023.
The portfolio is actively managed and current holdings may be different.
Management Review
Summary of Results
For the twelve months ended December 31, 2023, Initial Class shares of the MFS High Yield Portfolio (fund) provided a total return of 12.41%, while Service Class shares of the fund provided a total return of 12.48%. These compare with a return of 13.44% over the same period for the fund’s benchmark, the Bloomberg U.S. Corporate High-Yield 2% Issuer Capped Index.
Market Environment
During the reporting period, central banks around the world had to combat the strongest inflationary pressures in four decades, fueled by the global fiscal response to the pandemic, disrupted supply chains and the dislocations to energy markets stemming from the war in Ukraine. Interest rates rose substantially, but the effects of a tighter monetary policy may not have been fully experienced yet, given that monetary policy works with long and variable lags. Strains resulting from the abrupt tightening of monetary policy began to affect some parts of the economy, most acutely among small and regional US banks, which suffered from deposit flight as depositors sought higher yields on their savings. Additionally, activity in the US housing sector has slowed as a result of higher mortgage rates. China’s abandonment of its Zero-COVID policy ushered in a brief uptick in economic activity in the world’s second-largest economy in early 2023, although its momentum soon stalled as the focus turned to the country’s highly indebted property development sector. In developed markets, consumer demand for services remained stronger than the demand for goods.
Early on, policymakers found themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, central banks focused on controlling price pressures while also confronting increasing financial stability concerns. Central banks had to juggle achieving their inflation mandates while using macroprudential tools (financial policies aimed at safeguarding the stability of the financial system) to keep banking systems liquid, a potentially difficult balancing act, and one that suggested that we may be nearing a peak in policy rates. As inflationary pressures eased toward the end of the period, financial conditions loosened in anticipation of easier monetary policy, boosting the market’s appetite for risk. Rapid advancements in artificial intelligence were a focus for investors.
Normalizing supply chains, low levels of unemployment across developed markets and signs that inflation levels have peaked were supportive factors for the macroeconomic backdrop.
Detractors from Performance
Relative to the Bloomberg U.S. Corporate High-Yield 2% Issuer Capped Index, security selection within “B” rated(r) bonds was a primary detractor from the fund’s performance. The fund’s holdings of “Not Rated” issuers and overweight exposure to “BBB” rated bonds, also weakened relative performance. From a sector perspective, security selection within the industrial technology and brokerage sectors held back relative results.
Top security selection detractors for the reporting period included the fund’s overweight positions in carbon and graphite manufacturer GrafTech Finance (Industrials) and radio media company iHeartCommunications(h) (Communications).
Contributors to Performance
Security selection within “CCC” and “BB” rated bonds contributed to the fund’s relative performance. From a sector perspective, bond selection within the consumer cyclical sector was a positive factor for relative returns. The fund’s underweight allocation to the communications sector and overweight allocation to the brokerage sector, also strengthened relative performance.
The fund's top security selection contributors for the reporting period included its overweight position in print, signage, and apparel company Cimpress (Communications) and underweight position in cruise ship operator Carnival (Consumer Cyclical).
Respectfully,
Portfolio Manager(s)
David Cole and Michael Skatrud
| (h) | Security was not held in the portfolio at period end. |
| (r) | Securities rated “BBB”, “Baa”, or higher are considered investment grade; securities rated “BB”, “Ba”, or below are considered non-investment grade. Ratings are assigned to underlying securities utilizing ratings from Moody's, Fitch, and Standard & Poor's and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). For securities that are not rated by any of the rating agencies, the security is considered Not Rated. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
Performance Summary Through 12/31/23
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/23
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 6/12/1985 | 12.41% | 4.66% | 3.82% |
| Service Class | 8/24/2001 | 12.48% | 4.42% | 3.58% |
Comparative benchmark(s)
| Bloomberg U.S. Corporate High-Yield 2% Issuer Capped Index (f) | 13.44% | 5.35% | 4.59% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Bloomberg U.S. Corporate High-Yield 2% Issuer Capped Index(a) – a component of the Bloomberg U.S. Corporate High-Yield Bond Index, which measures performance of non-investment grade, fixed rate debt. The index limits the maximum exposure to any one issuer to 2%.
It is not possible to invest directly in an index.
| (a) | Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg's licensors own all proprietary rights in the Bloomberg Indices. Bloomberg neither approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance Summary – continued
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2023 through December 31, 2023
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2023 through December 31, 2023.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/23 | Ending
Account Value
12/31/23 | Expenses
Paid During
Period (p)
7/01/23-12/31/23 |
| Initial Class | Actual | 0.72% | $1,000.00 | $1,071.85 | $3.76 |
| Hypothetical (h) | 0.72% | $1,000.00 | $1,021.58 | $3.67 |
| Service Class | Actual | 0.97% | $1,000.00 | $1,071.81 | $5.07 |
| Hypothetical (h) | 0.97% | $1,000.00 | $1,020.32 | $4.94 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
Portfolio of Investments − 12/31/23
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Bonds – 95.5% |
| Aerospace & Defense – 3.6% |
| Bombardier, Inc., 7.125%, 6/15/2026 (n) | | $ | 401,000 | $ 399,128 |
| Bombardier, Inc., 7.5%, 2/01/2029 (n) | | | 380,000 | 386,300 |
| Bombardier, Inc., 8.75%, 11/15/2030 (n) | | | 264,000 | 281,082 |
| F-Brasile S.p.A./F-Brasile U.S. LLC, 7.375%, 8/15/2026 (n) | | | 870,000 | 850,299 |
| Moog, Inc., 4.25%, 12/15/2027 (n) | | | 900,000 | 849,829 |
| Spirit AeroSystems, Inc., 4.6%, 6/15/2028 | | | 524,000 | 463,469 |
| Spirit AeroSystems, Inc., 9.75%, 11/15/2030 (n) | | | 896,000 | 963,177 |
| TransDigm, Inc., 6.25%, 3/15/2026 (n) | | | 804,000 | 802,611 |
| TransDigm, Inc., 5.5%, 11/15/2027 | | | 934,000 | 915,065 |
| TransDigm, Inc., 6.75%, 8/15/2028 (n) | | | 699,000 | 715,134 |
| TransDigm, Inc., 4.625%, 1/15/2029 | | | 569,000 | 534,220 |
| TransDigm, Inc., 6.875%, 12/15/2030 (n) | | | 1,524,000 | 1,569,720 |
| | | | | $8,730,034 |
| Airlines – 0.8% |
| Air Canada, 3.875%, 8/15/2026 (n) | | $ | 1,248,000 | $ 1,192,326 |
| American Airlines, Inc./AAdvantage Loyalty IP Ltd., 5.75%, 4/20/2029 (n) | | | 672,388 | 655,419 |
| | | | | $1,847,745 |
| Asset-Backed & Securitized – 0.0% |
| COBALT CMBS Commercial Mortgage Trust, 2006-2A, “F”, CDO, FLR, 5.627% ((SOFR - 3mo. + 0.26161%) + 1.3% Cash or PIK) 4/26/2050 (a)(n)(p) | | $ | 1,406,626 | $ 141 |
| Automotive – 1.7% |
| Clarios Global LP/Clarios U.S. Finance Co., 8.5%, 5/15/2027 (n) | | $ | 761,000 | $ 763,653 |
| Clarios Global LP/Clarios U.S. Finance Co., 6.75%, 5/15/2028 (n) | | | 374,000 | 381,561 |
| Dana, Inc., 5.375%, 11/15/2027 | | | 706,000 | 701,132 |
| Dana, Inc., 4.25%, 9/01/2030 | | | 462,000 | 409,483 |
| Dornoch Debt Merger Sub, Inc., 6.625%, 10/15/2029 (n) | | | 764,000 | 688,799 |
| Real Hero Merger Sub 2, Inc., 6.25%, 2/01/2029 (n) | | | 627,000 | 540,559 |
| Wabash National Corp., 4.5%, 10/15/2028 (n) | | | 759,000 | 684,858 |
| | | | | $4,170,045 |
| Broadcasting – 0.9% |
| Banijay Group S.A.S., 8.125%, 5/01/2029 (n) | | $ | 800,000 | $ 823,628 |
| Midas OpCo Holdings LLC, 5.625%, 8/15/2029 (n) | | | 1,036,000 | 952,879 |
| Summer (BC) Bidco B LLC, 5.5%, 10/31/2026 (n) | | | 388,000 | 363,168 |
| | | | | $2,139,675 |
| Brokerage & Asset Managers – 1.3% |
| AG TTMT Escrow Issuer LLC, 8.625%, 9/30/2027 (n) | | $ | 666,000 | $ 700,228 |
| Aretec Escrow Issuer 2, Inc., 10%, 8/15/2030 (n) | | | 755,000 | 802,301 |
| Aretec Escrow Issuer, Inc., 7.5%, 4/01/2029 (n) | | | 641,000 | 576,984 |
| LPL Holdings, Inc., 4%, 3/15/2029 (n) | | | 526,000 | 486,769 |
| LPL Holdings, Inc., 4.375%, 5/15/2031 (n) | | | 732,000 | 662,848 |
| | | | | $3,229,130 |
| Building – 4.2% |
| Foundation Building Materials LLC, 6%, 3/01/2029 (n) | | $ | 919,000 | $ 826,301 |
| GYP Holding III Corp., 4.625%, 5/01/2029 (n) | | | 1,154,000 | 1,053,490 |
| Interface, Inc., 5.5%, 12/01/2028 (n) | | | 1,096,000 | 1,013,014 |
| MIWD Holdco II LLC/MIWD Finance Co., 5.5%, 2/01/2030 (n) | | | 768,000 | 679,680 |
| New Enterprise Stone & Lime Co., Inc., 5.25%, 7/15/2028 (n) | | | 976,000 | 931,016 |
| New Enterprise Stone & Lime Co., Inc., 9.75%, 7/15/2028 (n) | | | 309,000 | 309,000 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Building – continued |
| Patrick Industries, Inc., 7.5%, 10/15/2027 (n) | | $ | 1,056,000 | $ 1,058,640 |
| SRM Concrete, 8.875%, 11/15/2031 (n) | | | 1,034,000 | 1,086,916 |
| SRS Distribution, Inc., 6.125%, 7/01/2029 (n) | | | 553,000 | 524,261 |
| Standard Industries, Inc., 2.25%, 11/21/2026 | | EUR | 235,000 | 244,511 |
| Standard Industries, Inc., 4.75%, 1/15/2028 (n) | | $ | 487,000 | 468,832 |
| Standard Industries, Inc., 4.375%, 7/15/2030 (n) | | | 1,131,000 | 1,038,697 |
| Summit Materials LLC/Summit Materials Finance Corp., 7.25%, 1/15/2031 (n) | | | 220,000 | 231,815 |
| White Cap Buyer LLC, 6.875%, 10/15/2028 (n) | | | 906,000 | 877,019 |
| | | | | $10,343,192 |
| Business Services – 1.2% |
| Entegris Escrow Corp., 5.95%, 6/15/2030 (n) | | $ | 418,000 | $ 415,508 |
| Iron Mountain, Inc., 4.875%, 9/15/2027 (n) | | | 727,000 | 709,414 |
| Iron Mountain, Inc., 5.25%, 3/15/2028 (n) | | | 698,000 | 678,629 |
| Verscend Escrow Corp., 9.75%, 8/15/2026 (n) | | | 1,230,000 | 1,238,644 |
| | | | | $3,042,195 |
| Cable TV – 8.4% |
| Cable One, Inc., 4%, 11/15/2030 (n) | | $ | 1,384,000 | $ 1,120,539 |
| CCO Holdings LLC/CCO Holdings Capital Corp., 5.125%, 5/01/2027 (n) | | | 688,000 | 664,725 |
| CCO Holdings LLC/CCO Holdings Capital Corp., 4.75%, 3/01/2030 (n) | | | 2,998,000 | 2,739,467 |
| CCO Holdings LLC/CCO Holdings Capital Corp., 4.5%, 8/15/2030 (n) | | | 1,585,000 | 1,428,852 |
| CCO Holdings LLC/CCO Holdings Capital Corp., 4.25%, 2/01/2031 (n) | | | 1,318,000 | 1,151,840 |
| CCO Holdings LLC/CCO Holdings Capital Corp., 4.25%, 1/15/2034 (n) | | | 757,000 | 615,159 |
| CSC Holdings LLC, 5.375%, 2/01/2028 (n) | | | 1,200,000 | 1,060,000 |
| CSC Holdings LLC, 7.5%, 4/01/2028 (n) | | | 600,000 | 448,854 |
| CSC Holdings LLC, 5.75%, 1/15/2030 (n) | | | 1,045,000 | 650,512 |
| CSC Holdings LLC, 4.125%, 12/01/2030 (n) | | | 400,000 | 304,300 |
| DISH DBS Corp., 7.75%, 7/01/2026 | | | 505,000 | 351,738 |
| DISH DBS Corp., 5.25%, 12/01/2026 (n) | | | 700,000 | 599,725 |
| DISH DBS Corp., 5.125%, 6/01/2029 | | | 609,000 | 313,873 |
| DISH Network Corp., 11.75%, 11/15/2027 (n) | | | 365,000 | 381,008 |
| LCPR Senior Secured Financing DAC, 6.75%, 10/15/2027 (n) | | | 1,082,000 | 1,059,776 |
| LCPR Senior Secured Financing DAC, 5.125%, 7/15/2029 (n) | | | 325,000 | 283,119 |
| Sirius XM Radio, Inc., 4%, 7/15/2028 (n) | | | 459,000 | 424,503 |
| Sirius XM Radio, Inc., 5.5%, 7/01/2029 (n) | | | 1,480,000 | 1,430,908 |
| Sirius XM Radio, Inc., 3.875%, 9/01/2031 (n) | | | 619,000 | 529,546 |
| Videotron Ltd., 5.125%, 4/15/2027 (n) | | | 583,000 | 574,255 |
| Videotron Ltd., 3.625%, 6/15/2029 (n) | | | 533,000 | 483,717 |
| Virgin Media Finance PLC, 5%, 7/15/2030 (n) | | | 1,400,000 | 1,234,327 |
| Virgin Media Vendor Financing Notes IV DAC, 5%, 7/15/2028 (n) | | | 1,261,000 | 1,184,330 |
| Ziggo Bond Finance B.V., 5.125%, 2/28/2030 (n) | | | 1,945,000 | 1,626,730 |
| | | | | $20,661,803 |
| Chemicals – 3.1% |
| Axalta Coating Systems Ltd., 4.75%, 6/15/2027 (n) | | $ | 834,000 | $ 810,463 |
| Axalta Coating Systems Ltd., 3.375%, 2/15/2029 (n) | | | 266,000 | 238,716 |
| Element Solutions, Inc., 3.875%, 9/01/2028 (n) | | | 794,000 | 730,986 |
| Ingevity Corp., 3.875%, 11/01/2028 (n) | | | 1,251,000 | 1,120,311 |
| LSF11 A5 HoldCo LLC, 6.625%, 10/15/2029 (n) | | | 907,000 | 766,991 |
| SCIH Salt Holdings, Inc., 6.625%, 5/01/2029 (n) | | | 901,000 | 840,833 |
| SCIL IV LLC/SCIL USA Holdings LLC, 9.5%, 7/15/2028 (n) | | EUR | 677,000 | 795,954 |
| SNF Group SACA, 3.375%, 3/15/2030 (n) | | $ | 1,301,000 | 1,117,906 |
| Windsor Holdings III, LLC, 8.5%, 6/15/2030 (n) | | | 1,139,000 | 1,190,287 |
| | | | | $7,612,447 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Computer Software – 0.6% |
| Central Parent LLC/CDK Global II LLC/CDK Financing Co., Inc., 8%, 6/15/2029 (n) | | $ | 751,000 | $ 783,864 |
| Dun & Bradstreet Corp., 5%, 12/15/2029 (n) | | | 844,000 | 787,300 |
| | | | | $1,571,164 |
| Computer Software - Systems – 1.7% |
| Fair Isaac Corp., 5.25%, 5/15/2026 (n) | | $ | 1,471,000 | $ 1,460,527 |
| Sabre GLBL, Inc., 8.625%, 6/01/2027 (n) | | | 374,000 | 340,347 |
| Sabre GLBL, Inc., 11.25%, 12/15/2027 (n) | | | 387,000 | 380,239 |
| SS&C Technologies Holdings, Inc., 5.5%, 9/30/2027 (n) | | | 1,503,000 | 1,481,556 |
| Virtusa Corp., 7.125%, 12/15/2028 (n) | | | 472,000 | 404,150 |
| | | | | $4,066,819 |
| Conglomerates – 3.4% |
| BWX Technologies, Inc., 4.125%, 6/30/2028 (n) | | $ | 563,000 | $ 522,064 |
| BWX Technologies, Inc., 4.125%, 4/15/2029 (n) | | | 1,598,000 | 1,458,175 |
| Chart Industries, Inc., 9.5%, 1/01/2031 (n) | | | 866,000 | 940,624 |
| Emerald Debt Merger, 6.625%, 12/15/2030 (n) | | | 1,077,000 | 1,100,016 |
| Gates Global LLC, 6.25%, 1/15/2026 (n) | | | 637,000 | 633,815 |
| Griffon Corp., 5.75%, 3/01/2028 | | | 918,000 | 901,999 |
| Madison IAQ LLC, 5.875%, 6/30/2029 (n) | | | 798,000 | 703,105 |
| Regal Rexnord Corp., 6.3%, 2/15/2030 (n) | | | 628,000 | 644,272 |
| TriMas Corp., 4.125%, 4/15/2029 (n) | | | 1,652,000 | 1,484,268 |
| | | | | $8,388,338 |
| Construction – 0.7% |
| Mattamy Group Corp., 5.25%, 12/15/2027 (n) | | $ | 510,000 | $ 495,822 |
| Mattamy Group Corp., 4.625%, 3/01/2030 (n) | | | 522,000 | 483,766 |
| Weekley Homes LLC/Weekley Finance Corp., 4.875%, 9/15/2028 (n) | | | 875,000 | 815,235 |
| | | | | $1,794,823 |
| Consumer Products – 1.5% |
| Energizer Gamma Acquisition B.V., 3.5%, 6/30/2029 | | EUR | 465,000 | $ 440,344 |
| Energizer Holdings, Inc., 4.375%, 3/31/2029 (n) | | $ | 896,000 | 801,997 |
| HFC Prestige Products, Inc. / HFC Prestige International US LLC, 6.625%, 7/15/2030 (n) | | | 1,054,000 | 1,082,785 |
| Prestige Consumer Healthcare, Inc., 5.125%, 1/15/2028 (n) | | | 984,000 | 955,592 |
| Prestige Consumer Healthcare, Inc., 3.75%, 4/01/2031 (n) | | | 531,000 | 464,182 |
| | | | | $3,744,900 |
| Consumer Services – 4.3% |
| Allied Universal Holdco LLC, 9.75%, 7/15/2027 (n) | | $ | 1,099,000 | $ 1,076,907 |
| Allied Universal Holdco LLC, 6%, 6/01/2029 (n) | | | 465,000 | 379,112 |
| ANGI Group LLC, 3.875%, 8/15/2028 (n) | | | 458,000 | 386,794 |
| Arches Buyer, Inc., 6.125%, 12/01/2028 (n) | | | 833,000 | 720,545 |
| Cushman & Wakefield PLC, 6.75%, 5/15/2028 (n) | | | 690,000 | 686,550 |
| GoDaddy, Inc., 3.5%, 3/01/2029 (n) | | | 1,487,000 | 1,346,771 |
| GW B-CR Security Corp., 9.5%, 11/01/2027 (n) | | | 906,000 | 913,383 |
| Match Group Holdings II LLC, 5%, 12/15/2027 (n) | | | 692,000 | 675,710 |
| Match Group Holdings II LLC, 4.625%, 6/01/2028 (n) | | | 1,205,000 | 1,153,787 |
| Match Group Holdings II LLC, 4.125%, 8/01/2030 (n) | | | 314,000 | 284,926 |
| Match Group Holdings II LLC, 3.625%, 10/01/2031 (n) | | | 144,000 | 124,419 |
| Realogy Group LLC/Realogy Co-Issuer Corp., 5.75%, 1/15/2029 (n) | | | 626,000 | 486,505 |
| Realogy Group LLC/Realogy Co-Issuer Corp., 5.25%, 4/15/2030 (n) | | | 675,000 | 503,798 |
| TriNet Group, Inc., 3.5%, 3/01/2029 (n) | | | 1,341,000 | 1,199,651 |
| WASH Multi-Family Acquisition, Inc., 5.75%, 4/15/2026 (n) | | | 742,000 | 714,098 |
| | | | | $10,652,956 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Containers – 2.9% |
| ARD Finance S.A., 6.5% (6.5% Cash or 7.25% PIK), 6/30/2027 (n)(p) | | $ | 312,000 | $ 145,760 |
| Ardagh Metal Packaging Finance USA LLC, 3.25%, 9/01/2028 (n) | | | 550,000 | 481,153 |
| Ardagh Metal Packaging Finance USA LLC, 4%, 9/01/2029 (n) | | | 1,350,000 | 1,142,743 |
| Ardagh Packaging Finance PLC/Ardagh MP Holdings USA, Inc., 5.25%, 8/15/2027 (n) | | | 1,100,000 | 854,551 |
| Can-Pack S.A./Eastern PA Land Investment Holding LLC, 3.875%, 11/15/2029 (n) | | | 1,628,000 | 1,395,392 |
| Crown Americas LLC, 5.25%, 4/01/2030 | | | 440,000 | 433,327 |
| Crown Americas LLC/Crown Americas Capital Corp. V, 4.25%, 9/30/2026 | | | 1,001,000 | 970,972 |
| Crown Americas LLC/Crown Americas Capital Corp. VI, 4.75%, 2/01/2026 | | | 485,000 | 480,391 |
| Crown European Holdings S.A., 4.75%, 3/15/2029 (n) | | EUR | 463,000 | 520,227 |
| Trivium Packaging Finance B.V., 8.5%, 8/15/2027 (n) | | $ | 634,000 | 621,636 |
| | | | | $7,046,152 |
| Electronics – 1.2% |
| Entegris, Inc., 4.375%, 4/15/2028 (n) | | $ | 593,000 | $ 564,334 |
| Entegris, Inc., 3.625%, 5/01/2029 (n) | | | 570,000 | 514,841 |
| Sensata Technologies B.V., 5%, 10/01/2025 (n) | | | 1,098,000 | 1,099,327 |
| Sensata Technologies B.V., 5.875%, 9/01/2030 (n) | | | 580,000 | 576,240 |
| Sensata Technologies, Inc., 4.375%, 2/15/2030 (n) | | | 154,000 | 142,829 |
| | | | | $2,897,571 |
| Energy - Independent – 3.7% |
| Callon Petroleum Co., 8%, 8/01/2028 (n) | | $ | 687,000 | $ 701,615 |
| Callon Petroleum Co., 7.5%, 6/15/2030 (n) | | | 228,000 | 229,943 |
| Civitas Resources, Inc., 8.375%, 7/01/2028 (n) | | | 723,000 | 754,772 |
| Civitas Resources, Inc., 8.625%, 11/01/2030 (n) | | | 221,000 | 234,420 |
| Civitas Resources, Inc., 8.75%, 7/01/2031 (n) | | | 456,000 | 485,433 |
| Comstock Resources, Inc., 6.75%, 3/01/2029 (n) | | | 1,254,000 | 1,146,792 |
| CrownRock LP/CrownRock Finance, Inc., “F”, 5%, 5/01/2029 (n) | | | 853,000 | 831,675 |
| Matador Resources Co., 6.875%, 4/15/2028 (n) | | | 858,000 | 870,283 |
| Moss Creek Resources Holdings, Inc., 7.5%, 1/15/2026 (n) | | | 670,000 | 668,711 |
| Permian Resources Operating LLC, 7.75%, 2/15/2026 (n) | | | 155,000 | 157,686 |
| Permian Resources Operating LLC, 5.875%, 7/01/2029 (n) | | | 1,150,000 | 1,121,204 |
| Permian Resources Operating LLC, 7%, 1/15/2032 (n) | | | 469,000 | 483,854 |
| Sitio Royalties Operating Partnership, LP, 7.875%, 11/01/2028 (n) | | | 893,000 | 925,344 |
| SM Energy Co., 6.5%, 7/15/2028 | | | 600,000 | 600,276 |
| | | | | $9,212,008 |
| Energy - Integrated – 0.3% |
| Citgo Petroleum Corp., 8.375%, 1/15/2029 (n) | | $ | 610,000 | $ 627,281 |
| Entertainment – 3.2% |
| Carnival Corp. PLC, 7.625%, 3/01/2026 (n) | | $ | 709,000 | $ 721,819 |
| Carnival Corp. PLC, 5.75%, 3/01/2027 (n) | | | 1,313,000 | 1,280,744 |
| Carnival Corp. PLC, 4%, 8/01/2028 (n) | | | 457,000 | 424,890 |
| Carnival Corp. PLC, 6%, 5/01/2029 (n) | | | 314,000 | 302,133 |
| Motion Bondco DAC, 6.625%, 11/15/2027 (n) | | | 886,000 | 819,376 |
| NCL Corp. Ltd., 5.875%, 3/15/2026 (n) | | | 707,000 | 690,851 |
| NCL Corp. Ltd., 7.75%, 2/15/2029 (n) | | | 300,000 | 301,816 |
| Royal Caribbean Cruises Ltd., 5.375%, 7/15/2027 (n) | | | 661,000 | 654,338 |
| Royal Caribbean Cruises Ltd., 5.5%, 4/01/2028 (n) | | | 911,000 | 899,393 |
| SeaWorld Parks & Entertainment, 5.25%, 8/15/2029 (n) | | | 602,000 | 562,759 |
| Viking Cruises Ltd. Co., 5.875%, 9/15/2027 (n) | | | 297,000 | 286,605 |
| Viking Ocean Cruises Ship VII Ltd., 5.625%, 2/15/2029 (n) | | | 521,000 | 507,975 |
| VOC Escrow Ltd., 5%, 2/15/2028 (n) | | | 461,000 | 441,555 |
| | | | | $7,894,254 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Financial Institutions – 4.8% |
| Avation Capital S.A., 8.25% (8.25% Cash or 9% PIK), 10/31/2026 (n)(p) | | $ | 874,696 | $ 741,305 |
| Castlelake Aviation Finance Designated Activity Co., 5%, 4/15/2027 (n) | | | 183,000 | 171,319 |
| Credit Acceptance Corp., 6.625%, 3/15/2026 | | | 107,000 | 106,744 |
| Credit Acceptance Corp., 9.25%, 12/15/2028 (n) | | | 719,000 | 766,418 |
| Freedom Mortgage Corp., 7.625%, 5/01/2026 (n) | | | 599,000 | 591,182 |
| Global Aircraft Leasing Co. Ltd., 6.5% (6.5% Cash or 7.25% PIK), 9/15/2024 (n)(p) | | | 1,847,562 | 1,736,708 |
| Howard Hughes Corp., 4.125%, 2/01/2029 (n) | | | 1,245,000 | 1,110,179 |
| Macquarie AirFinance Holdings Ltd., 8.375%, 5/01/2028 (n) | | | 968,000 | 1,013,835 |
| Macquarie AirFinance Holdings Ltd., 8.125%, 3/30/2029 (n) | | | 162,000 | 169,326 |
| Nationstar Mortgage Holdings, Inc., 6%, 1/15/2027 (n) | | | 1,286,000 | 1,276,355 |
| Nationstar Mortgage Holdings, Inc., 5.75%, 11/15/2031 (n) | | | 190,000 | 177,158 |
| OneMain Finance Corp., 6.875%, 3/15/2025 | | | 732,000 | 740,989 |
| OneMain Finance Corp., 7.125%, 3/15/2026 | | | 1,053,000 | 1,072,785 |
| OneMain Finance Corp., 5.375%, 11/15/2029 | | | 516,000 | 483,181 |
| Rocket Mortgage Co-Issuer, Inc., 3.625%, 3/01/2029 (n) | | | 636,000 | 575,635 |
| Rocket Mortgage Co-Issuer, Inc., 3.875%, 3/01/2031 (n) | | | 226,000 | 198,766 |
| SLM Corp., 3.125%, 11/02/2026 | | | 836,000 | 779,516 |
| | | | | $11,711,401 |
| Food & Beverages – 2.8% |
| B&G Foods, Inc., 5.25%, 9/15/2027 | | $ | 377,000 | $ 342,489 |
| B&G Foods, Inc., 8%, 9/15/2028 (n) | | | 427,000 | 448,368 |
| Performance Food Group Co., 5.5%, 10/15/2027 (n) | | | 930,000 | 916,346 |
| Post Holdings, Inc., 5.625%, 1/15/2028 (n) | | | 800,000 | 792,763 |
| Post Holdings, Inc., 4.625%, 4/15/2030 (n) | | | 1,169,000 | 1,075,296 |
| Primo Water Holding, Inc., 4.375%, 4/30/2029 (n) | | | 1,338,000 | 1,232,823 |
| TreeHouse Foods, Inc., 4%, 9/01/2028 | | | 828,000 | 732,941 |
| U.S. Foods Holding Corp., 4.75%, 2/15/2029 (n) | | | 1,057,000 | 1,003,880 |
| United Natural Foods, Inc., 6.75%, 10/15/2028 (n) | | | 485,000 | 392,627 |
| | | | | $6,937,533 |
| Gaming & Lodging – 3.2% |
| Caesars Entertainment, Inc., 4.625%, 10/15/2029 (n) | | $ | 381,000 | $ 343,664 |
| Caesars Entertainment, Inc., 7%, 2/15/2030 (n) | | | 784,000 | 803,943 |
| Caesars Resort Collection LLC/CRC Finco, Inc., 8.125%, 7/01/2027 (n) | | | 853,000 | 874,409 |
| CCM Merger, Inc., 6.375%, 5/01/2026 (n) | | | 832,000 | 811,200 |
| CDI Escrow Issuer, Inc., 5.75%, 4/01/2030 (n) | | | 1,051,000 | 1,024,716 |
| Penn National Gaming, Inc., 4.125%, 7/01/2029 (n) | | | 972,000 | 831,059 |
| Wyndham Hotels & Resorts, Inc., 4.375%, 8/15/2028 (n) | | | 979,000 | 915,512 |
| Wynn Macau Ltd., 5.5%, 10/01/2027 (n) | | | 849,000 | 801,984 |
| Wynn Macau Ltd., 5.625%, 8/26/2028 (n) | | | 607,000 | 562,158 |
| Wynn Resorts Finance LLC/Wynn Resorts Capital Corp., 5.125%, 10/01/2029 (n) | | | 982,000 | 926,799 |
| | | | | $7,895,444 |
| Industrial – 1.3% |
| Albion Financing 1 S.à r.l., 6.125%, 10/15/2026 (n) | | $ | 400,000 | $ 396,224 |
| Albion Financing 2 S.à r.l., 8.75%, 4/15/2027 (n) | | | 540,000 | 526,500 |
| APi Escrow Corp., 4.75%, 10/15/2029 (n) | | | 1,291,000 | 1,212,662 |
| Williams Scotsman International, Inc., 4.625%, 8/15/2028 (n) | | | 1,163,000 | 1,098,485 |
| | | | | $3,233,871 |
| Insurance - Property & Casualty – 3.3% |
| Acrisure LLC/Acrisure Finance, Inc., 7%, 11/15/2025 (n) | | $ | 479,000 | $ 477,859 |
| Acrisure LLC/Acrisure Finance, Inc., 4.25%, 2/15/2029 (n) | | | 380,000 | 343,121 |
| Acrisure LLC/Acrisure Finance, Inc., 6%, 8/01/2029 (n) | | | 448,000 | 407,073 |
| Alliant Holdings Intermediate LLC/Alliant Holdings Co-Issuer, 6.75%, 10/15/2027 (n) | | | 610,000 | 607,844 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Insurance - Property & Casualty – continued |
| Alliant Holdings Intermediate LLC/Alliant Holdings Co-Issuer, 5.875%, 11/01/2029 (n) | | $ | 1,140,000 | $ 1,080,141 |
| AmWINS Group Benefits, Inc., 4.875%, 6/30/2029 (n) | | | 904,000 | 825,563 |
| AssuredPartners, Inc., 5.625%, 1/15/2029 (n) | | | 740,000 | 690,826 |
| GTCR (AP) Finance, Inc., 8%, 5/15/2027 (n) | | | 554,000 | 559,569 |
| Hub International Ltd., 5.625%, 12/01/2029 (n) | | | 752,000 | 717,387 |
| Hub International Ltd., 7.25%, 6/15/2030 (n) | | | 624,000 | 659,088 |
| NFP Corp., 4.875%, 8/15/2028 (n) | | | 815,000 | 806,561 |
| NFP Corp., 6.875%, 8/15/2028 (n) | | | 638,000 | 648,591 |
| NFP Corp., 8.5%, 10/01/2031 (n) | | | 220,000 | 238,458 |
| | | | | $8,062,081 |
| Machinery & Tools – 0.9% |
| Ritchie Bros Holdings, Inc., 7.75%, 3/15/2031 (n) | | $ | 1,254,000 | $ 1,336,902 |
| Terex Corp., 5%, 5/15/2029 (n) | | | 891,000 | 839,767 |
| | | | | $2,176,669 |
| Major Banks – 0.5% |
| Toronto-Dominion Bank, 8.125% to 10/31/2027, FLR (CMT - 5yr. + 4.075%) to 10/31/2082 | | $ | 1,180,000 | $ 1,228,131 |
| Medical & Health Technology & Services – 5.4% |
| 180 Medical, Inc., 3.875%, 10/15/2029 (n) | | $ | 920,000 | $ 828,690 |
| Avantor Funding, Inc., 4.625%, 7/15/2028 (n) | | | 1,296,000 | 1,252,559 |
| Bausch & Lomb Escrow Corp., 8.375%, 10/01/2028 (n) | | | 781,000 | 823,908 |
| Charles River Laboratories International, Inc., 3.75%, 3/15/2029 (n) | | | 1,536,000 | 1,406,548 |
| CHS/Community Health Systems, Inc., 8%, 12/15/2027 (n) | | | 546,000 | 526,931 |
| CHS/Community Health Systems, Inc., 6.125%, 4/01/2030 (n) | | | 1,051,000 | 680,459 |
| CHS/Community Health Systems, Inc., 5.25%, 5/15/2030 (n) | | | 917,000 | 766,930 |
| Encompass Health Corp., 5.75%, 9/15/2025 | | | 329,000 | 327,672 |
| Encompass Health Corp., 4.75%, 2/01/2030 | | | 944,000 | 888,994 |
| Encompass Health Corp., 4.625%, 4/01/2031 | | | 155,000 | 142,628 |
| IQVIA, Inc., 5%, 5/15/2027 (n) | | | 1,310,000 | 1,285,693 |
| IQVIA, Inc., 6.5%, 5/15/2030 (n) | | | 600,000 | 615,065 |
| Legacy LifePoint Health LLC, 4.375%, 2/15/2027 (n) | | | 380,000 | 350,831 |
| Star Parent, Inc., 9%, 10/01/2030 (n) | | | 448,000 | 472,126 |
| Tenet Healthcare Corp., 6.125%, 10/01/2028 | | | 593,000 | 591,322 |
| Tenet Healthcare Corp., 4.375%, 1/15/2030 | | | 538,000 | 498,586 |
| Tenet Healthcare Corp., 6.125%, 6/15/2030 | | | 911,000 | 921,100 |
| Tenet Healthcare Corp., 6.75%, 5/15/2031 (n) | | | 377,000 | 385,313 |
| U.S. Acute Care Solutions LLC, 6.375%, 3/01/2026 (n) | | | 749,000 | 625,834 |
| | | | | $13,391,189 |
| Medical Equipment – 1.3% |
| Embecta Corp., 5%, 2/15/2030 (n) | | $ | 912,000 | $ 773,595 |
| Garden SpinCo Corp., 8.625%, 7/20/2030 (n) | | | 794,000 | 848,100 |
| Medline Borrower LP, 5.25%, 10/01/2029 (n) | | | 1,129,000 | 1,064,169 |
| Teleflex, Inc., 4.625%, 11/15/2027 | | | 448,000 | 435,482 |
| | | | | $3,121,346 |
| Metals & Mining – 3.2% |
| Baffinland Iron Mines Corp./Baffinland Iron Mines LP, 8.75%, 7/15/2026 (n) | | $ | 815,000 | $ 762,795 |
| FMG Resources Ltd., 4.375%, 4/01/2031 (n) | | | 1,916,000 | 1,752,208 |
| GrafTech Finance, Inc., 4.625%, 12/15/2028 (n) | | | 1,121,000 | 743,122 |
| GrafTech Finance, Inc., 9.875%, 12/15/2028 (n) | | | 206,000 | 158,878 |
| Kaiser Aluminum Corp., 4.625%, 3/01/2028 (n) | | | 1,038,000 | 959,973 |
| Kaiser Aluminum Corp., 4.5%, 6/01/2031 (n) | | | 544,000 | 468,943 |
| Novelis Corp., 3.25%, 11/15/2026 (n) | | | 631,000 | 594,023 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Metals & Mining – continued |
| Novelis Corp., 4.75%, 1/30/2030 (n) | | $ | 905,000 | $ 851,106 |
| Novelis Corp., 3.875%, 8/15/2031 (n) | | | 488,000 | 430,042 |
| Petra Diamonds US$ Treasury PLC, 9.75%, 3/08/2026 (n) | | | 530,294 | 397,721 |
| Taseko Mines Ltd., 7%, 2/15/2026 (n) | | | 741,000 | 702,245 |
| | | | | $7,821,056 |
| Midstream – 4.6% |
| DT Midstream, Inc., 4.125%, 6/15/2029 (n) | | $ | 834,000 | $ 767,266 |
| DT Midstream, Inc., 4.375%, 6/15/2031 (n) | | | 1,201,000 | 1,083,343 |
| EQM Midstream Partners LP, 5.5%, 7/15/2028 | | | 1,656,000 | 1,640,817 |
| Kinetik Holdings, Inc., 5.875%, 6/15/2030 (n) | | | 1,037,000 | 1,017,351 |
| NuStar Logistics, LP, 6.375%, 10/01/2030 | | | 761,000 | 762,347 |
| Tallgrass Energy Partners LP, 6%, 3/01/2027 (n) | | | 247,000 | 241,536 |
| Tallgrass Energy Partners LP, 5.5%, 1/15/2028 (n) | | | 1,339,000 | 1,265,366 |
| Venture Global Calcasieu Pass LLC, 3.875%, 8/15/2029 (n) | | | 1,097,000 | 995,308 |
| Venture Global Calcasieu Pass LLC, 6.25%, 1/15/2030 (n) | | | 337,000 | 335,177 |
| Venture Global Calcasieu Pass LLC, 4.125%, 8/15/2031 (n) | | | 750,000 | 660,754 |
| Venture Global LNG, Inc., 8.125%, 6/01/2028 (n) | | | 774,000 | 781,660 |
| Venture Global LNG, Inc., 9.5%, 2/01/2029 (n) | | | 855,000 | 904,733 |
| Venture Global LNG, Inc., 8.375%, 6/01/2031 (n) | | | 872,000 | 871,549 |
| | | | | $11,327,207 |
| Network & Telecom – 0.6% |
| Iliad Holding S.A.S., 6.5%, 10/15/2026 (n) | | $ | 200,000 | $ 199,609 |
| Iliad Holding S.A.S., 7%, 10/15/2028 (n) | | | 1,227,000 | 1,220,974 |
| | | | | $1,420,583 |
| Oil Services – 0.4% |
| Nabors Industries Ltd., 7.25%, 1/15/2026 (n) | | $ | 564,000 | $ 542,122 |
| Nabors Industries Ltd., 9.125%, 1/31/2030 (n) | | | 359,000 | 360,458 |
| | | | | $902,580 |
| Oils – 1.1% |
| Parkland Corp., 4.625%, 5/01/2030 (n) | | $ | 1,602,000 | $ 1,473,840 |
| PBF Holding Co. LLC/PBF Finance Corp., 6%, 2/15/2028 | | | 860,000 | 837,231 |
| Puma International Financing S.A., 5%, 1/24/2026 | | | 369,000 | 350,919 |
| | | | | $2,661,990 |
| Personal Computers & Peripherals – 0.6% |
| NCR Corp., 5%, 10/01/2028 (n) | | $ | 989,000 | $ 934,870 |
| NCR Corp., 5.125%, 4/15/2029 (n) | | | 569,000 | 540,892 |
| | | | | $1,475,762 |
| Pharmaceuticals – 1.0% |
| 1375209 BC Ltd., 9%, 1/30/2028 (n) | | $ | 537,000 | $ 523,629 |
| Bausch Health Co., Inc., 11%, 9/30/2028 (n) | | | 580,000 | 421,649 |
| Bausch Health Co., Inc., 14%, 10/15/2030 (n) | | | 127,000 | 70,652 |
| Organon Finance 1 LLC, 4.125%, 4/30/2028 (n) | | | 589,000 | 542,152 |
| Organon Finance 1 LLC, 5.125%, 4/30/2031 (n) | | | 1,176,000 | 1,005,297 |
| | | | | $2,563,379 |
| Pollution Control – 1.2% |
| GFL Environmental, Inc., 4.25%, 6/01/2025 (n) | | $ | 230,000 | $ 226,601 |
| GFL Environmental, Inc., 4%, 8/01/2028 (n) | | | 878,000 | 811,617 |
| GFL Environmental, Inc., 4.75%, 6/15/2029 (n) | | | 330,000 | 310,847 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Pollution Control – continued |
| GFL Environmental, Inc., 4.375%, 8/15/2029 (n) | | $ | 410,000 | $ 378,383 |
| GFL Environmental, Inc., 6.75%, 1/15/2031 (n) | | | 166,000 | 171,026 |
| Stericycle, Inc., 3.875%, 1/15/2029 (n) | | | 1,090,000 | 989,033 |
| | | | | $2,887,507 |
| Precious Metals & Minerals – 0.8% |
| Coeur Mining, Inc., 5.125%, 2/15/2029 (n) | | $ | 535,000 | $ 492,264 |
| Eldorado Gold Corp., 6.25%, 9/01/2029 (n) | | | 540,000 | 509,159 |
| IAMGOLD Corp., 5.75%, 10/15/2028 (n) | | | 988,000 | 849,638 |
| | | | | $1,851,061 |
| Printing & Publishing – 0.3% |
| Cimpress PLC, 7%, 6/15/2026 | | $ | 835,000 | $ 816,213 |
| Real Estate - Other – 0.8% |
| RHP Hotel Properties, LP/RHP Finance Corp., 7.25%, 7/15/2028 (n) | | $ | 956,000 | $ 993,941 |
| XHR LP, REIT, 4.875%, 6/01/2029 (n) | | | 1,015,000 | 934,292 |
| | | | | $1,928,233 |
| Restaurants – 0.3% |
| Fertitta Entertainment LLC, 6.75%, 1/15/2030 (n) | | $ | 901,000 | $ 791,080 |
| Retailers – 2.4% |
| Asbury Automotive Group, Inc., 4.625%, 11/15/2029 (n) | | $ | 1,016,000 | $ 940,410 |
| Bath & Body Works, Inc., 5.25%, 2/01/2028 | | | 1,482,000 | 1,465,788 |
| Lithia Motors, Inc., 3.875%, 6/01/2029 (n) | | | 763,000 | 689,030 |
| Macy's Retail Holdings LLC, 5.875%, 4/01/2029 (n) | | | 896,000 | 860,103 |
| NMG Holding Co. Inc./Neiman Marcus Group LLC, 7.125%, 4/01/2026 (n) | | | 494,000 | 474,708 |
| Penske Automotive Group Co., 3.75%, 6/15/2029 | | | 1,003,000 | 892,204 |
| Victoria's Secret & Co., 4.625%, 7/15/2029 (n) | | | 771,000 | 644,013 |
| | | | | $5,966,256 |
| Specialty Stores – 0.7% |
| Michael Cos., Inc., 5.25%, 5/01/2028 (n) | | $ | 550,000 | $ 434,822 |
| Michael Cos., Inc., 7.875%, 5/01/2029 (n) | | | 499,000 | 314,165 |
| PetSmart, Inc./PetSmart Finance Corp., 7.75%, 2/15/2029 (n) | | | 1,025,000 | 997,138 |
| | | | | $1,746,125 |
| Supermarkets – 0.2% |
| Picard Bondco S.A., 5.375%, 7/01/2027 | | EUR | 539,000 | $ 556,352 |
| Telecommunications - Wireless – 1.1% |
| Altice France S.A., 5.5%, 1/15/2028 (n) | | $ | 380,000 | $ 312,957 |
| Altice France S.A., 6%, 2/15/2028 (n) | | | 454,000 | 218,020 |
| Altice France S.A., 5.125%, 7/15/2029 (n) | | | 270,000 | 210,065 |
| SBA Communications Corp., 3.875%, 2/15/2027 | | | 643,000 | 617,482 |
| SBA Communications Corp., 3.125%, 2/01/2029 | | | 1,466,000 | 1,317,196 |
| | | | | $2,675,720 |
| U.S. Treasury Obligations – 0.5% |
| U.S. Treasury Notes, 3%, 6/30/2024 | | $ | 1,282,000 | $ 1,268,579 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Utilities - Electric Power – 3.5% |
| Calpine Corp., 4.5%, 2/15/2028 (n) | | $ | 1,014,000 | $ 964,466 |
| Calpine Corp., 5.125%, 3/15/2028 (n) | | | 804,000 | 770,858 |
| Clearway Energy Operating LLC, 4.75%, 3/15/2028 (n) | | | 801,000 | 771,695 |
| Clearway Energy Operating LLC, 3.75%, 2/15/2031 (n) | | | 1,631,000 | 1,436,602 |
| Clearway Energy Operating LLC, 3.75%, 1/15/2032 (n) | | | 232,000 | 201,544 |
| NextEra Energy, Inc., 4.25%, 7/15/2024 (n) | | | 27,000 | 26,694 |
| NextEra Energy, Inc., 4.25%, 9/15/2024 (n) | | | 146,000 | 141,255 |
| NextEra Energy, Inc., 4.5%, 9/15/2027 (n) | | | 839,000 | 807,553 |
| NextEra Energy, Inc., 7.25%, 1/15/2029 (n) | | | 738,000 | 772,617 |
| Pacific Gas & Electric Co., 6.1%, 1/15/2029 | | | 355,000 | 367,353 |
| TerraForm Global Operating LLC, 6.125%, 3/01/2026 (n) | | | 750,000 | 737,813 |
| TerraForm Power Operating LLC, 5%, 1/31/2028 (n) | | | 1,234,000 | 1,198,724 |
| TerraForm Power Operating LLC, 4.75%, 1/15/2030 (n) | | | 469,000 | 436,170 |
| | | | | $8,633,344 |
| Total Bonds (Identified Cost, $243,690,235) | | $234,723,365 |
| Common Stocks – 0.3% |
| Cable TV – 0.1% | |
| Intelsat Emergence S.A. (a) | | 10,701 | $ 299,628 |
| Oil Services – 0.2% | |
| LTRI Holdings LP (a)(u) | | 1,115 | $ 397,130 |
| Total Common Stocks (Identified Cost, $1,383,335) | | $696,758 |
| Convertible Bonds – 0.1% |
| Utilities - Electric Power – 0.1% | |
| Pacific Gas and Electric Corp., 4.25%, 12/01/2027 (n) (Identified Cost, $345,000) | | $ | 345,000 | $ 361,560 |
| | Strike
Price | First
Exercise | | |
| Warrants – 0.0% | | | | |
| Other Banks & Diversified Financials – 0.0% |
Avation Capital S.A. (1 share for 1 warrant, Expiration 10/31/26) (a)
(Identified Cost, $0) | GBP 1.14 | N/A | 11,113 | $ 2,408 |
| | | | | |
| Investment Companies (h) – 2.6% |
| Money Market Funds – 2.6% | |
| MFS Institutional Money Market Portfolio, 5.42% (v) (Identified Cost, $6,399,109) | | | 6,398,821 | $ 6,400,101 |
| Underlying/Expiration Date/Exercise Price | Put/Call | Counterparty | Notional
Amount | Par Amount/
Number of
Contracts | |
| Purchased Options – 0.0% | |
| Market Index Securities – 0.0% | |
| Russell 2000 Index – December 2024 @ $1,500 (Premiums Paid, $178,975) | Put | Exchange Traded | $ 5,067,685 | 25 | $73,500 |
| Other Assets, Less Liabilities – 1.5% | 3,604,729 |
| Net Assets – 100.0% | $245,862,421 |
Portfolio of Investments – continued
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $6,400,101 and $235,857,591, respectively. | | | |
| (n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $207,139,084, representing 84.2% of net assets. | | | |
| (p) | Payment-in-kind (PIK) security for which interest income may be received in additional securities and/or cash. | | | |
| (u) | The security was valued using significant unobservable inputs and is considered level 3 under the fair value hierarchy. For further information about the fund’s level 3 holdings, please see Note 2 in the Notes to Financial Statements. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| CDI | Interbank Deposit Certificates |
| CDO | Collateralized Debt Obligation |
| CMT | Constant Maturity Treasury |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| REIT | Real Estate Investment Trust |
| SOFR | Secured Overnight Financing Rate |
| Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below: |
| EUR | Euro |
| GBP | British Pound |
| Derivative Contracts at 12/31/23 |
| Forward Foreign Currency Exchange Contracts |
Currency
Purchased | Currency
Sold | Counterparty | Settlement
Date | Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| GBP | 66,094 | USD | 80,589 | UBS AG | 1/19/2024 | $3,665 |
| Liability Derivatives |
| USD | 1,409,317 | EUR | 1,325,630 | Barclays Bank PLC | 1/19/2024 | $(55,024) |
| USD | 505,163 | EUR | 463,000 | HSBC Bank | 1/19/2024 | (6,284) |
| USD | 549,841 | EUR | 506,946 | State Street Bank Corp. | 1/19/2024 | (10,152) |
| | | | | | | $(71,460) |
See Notes to Financial Statements
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/23Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $245,597,545) | $235,857,591 |
| Investments in affiliated issuers, at value (identified cost, $6,399,109) | 6,400,101 |
| Cash | 14 |
| Receivables for | |
| Forward foreign currency exchange contracts | 3,665 |
| Fund shares sold | 3,061 |
| Interest | 3,877,454 |
| Other assets | 1,435 |
| Total assets | $246,143,321 |
| Liabilities | |
| Payables for | |
| Forward foreign currency exchange contracts | $71,460 |
| Fund shares reacquired | 97,145 |
| Payable to affiliates | |
| Investment adviser | 21,047 |
| Administrative services fee | 451 |
| Shareholder servicing costs | 11 |
| Distribution and/or service fees | 743 |
| Payable for independent Trustees' compensation | 226 |
| Payable for audit and tax fees | 43,003 |
| Payable for shareholder communications | 26,316 |
| Accrued expenses and other liabilities | 20,498 |
| Total liabilities | $280,900 |
| Net assets | $245,862,421 |
| Net assets consist of | |
| Paid-in capital | $304,930,638 |
| Total distributable earnings (loss) | (59,068,217) |
| Net assets | $245,862,421 |
| Shares of beneficial interest outstanding | 49,225,367 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $218,731,298 | 43,727,845 | $5.00 |
| Service Class | 27,131,123 | 5,497,522 | 4.94 |
See Notes to Financial Statements
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/23 | |
| Net investment income (loss) | |
| Income | |
| Interest | $15,378,954 |
| Dividends from affiliated issuers | 294,945 |
| Other | 6,796 |
| Total investment income | $15,680,695 |
| Expenses | |
| Management fee | $1,731,831 |
| Distribution and/or service fees | 68,988 |
| Shareholder servicing costs | 3,059 |
| Administrative services fee | 45,984 |
| Independent Trustees' compensation | 6,493 |
| Custodian fee | 16,170 |
| Audit and tax fees | 86,683 |
| Legal fees | 1,214 |
| Miscellaneous | 33,782 |
| Total expenses | $1,994,204 |
| Reduction of expenses by investment adviser | (141,247) |
| Net expenses | $1,852,957 |
| Net investment income (loss) | $13,827,738 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $(12,430,103) |
| Affiliated issuers | 717 |
| Futures contracts | (276,632) |
| Forward foreign currency exchange contracts | (44,870) |
| Foreign currency | 878 |
| Net realized gain (loss) | $(12,750,010) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $27,854,517 |
| Affiliated issuers | 184 |
| Futures contracts | (12,011) |
| Forward foreign currency exchange contracts | 24,881 |
| Translation of assets and liabilities in foreign currencies | (214) |
| Net unrealized gain (loss) | $27,867,357 |
| Net realized and unrealized gain (loss) | $15,117,347 |
| Change in net assets from operations | $28,945,085 |
See Notes to Financial Statements
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/23 | 12/31/22 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $13,827,738 | $13,133,726 |
| Net realized gain (loss) | (12,750,010) | (7,326,132) |
| Net unrealized gain (loss) | 27,867,357 | (40,364,218) |
| Change in net assets from operations | $28,945,085 | $(34,556,624) |
| Total distributions to shareholders | $(14,087,664) | $(15,313,201) |
| Change in net assets from fund share transactions | $(22,030,742) | $(33,984,248) |
| Total change in net assets | $(7,173,321) | $(83,854,073) |
| Net assets | | |
| At beginning of period | 253,035,742 | 336,889,815 |
| At end of period | $245,862,421 | $253,035,742 |
See Notes to Financial Statements
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $4.72 | $5.59 | $5.68 | $5.72 | $5.28 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.27 | $0.23 | $0.23 | $0.25 | $0.27 |
| Net realized and unrealized gain (loss) | 0.30 | (0.81) | (0.03) | 0.03(g) | 0.50 |
| Total from investment operations | $0.57 | $(0.58) | $0.20 | $0.28 | $0.77 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.29) | $(0.29) | $(0.29) | $(0.32) | $(0.33) |
| Net asset value, end of period (x) | $5.00 | $4.72 | $5.59 | $5.68 | $5.72 |
| Total return (%) (k)(r)(s)(x) | 12.41 | (10.51) | 3.49 | 5.09 | 14.81 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.78 | 0.79 | 0.78 | 0.78 | 0.77 |
| Expenses after expense reductions | 0.72 | 0.72 | 0.72 | 0.72 | 0.72 |
| Net investment income (loss) | 5.62 | 4.68 | 4.13 | 4.50 | 4.78 |
| Portfolio turnover | 43 | 29 | 63 | 54 | 59 |
| Net assets at end of period (000 omitted) | $218,731 | $224,472 | $298,460 | $310,121 | $324,544 |
| Service Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $4.65 | $5.51 | $5.61 | $5.65 | $5.22 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.26 | $0.22 | $0.22 | $0.23 | $0.25 |
| Net realized and unrealized gain (loss) | 0.30 | (0.81) | (0.05) | 0.03(g) | 0.49 |
| Total from investment operations | $0.56 | $(0.59) | $0.17 | $0.26 | $0.74 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.27) | $(0.27) | $(0.27) | $(0.30) | $(0.31) |
| Net asset value, end of period (x) | $4.94 | $4.65 | $5.51 | $5.61 | $5.65 |
| Total return (%) (k)(r)(s)(x) | 12.48 | (10.78) | 3.08 | 4.85 | 14.44 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.03 | 1.04 | 1.03 | 1.03 | 1.02 |
| Expenses after expense reductions | 0.97 | 0.97 | 0.97 | 0.97 | 0.97 |
| Net investment income (loss) | 5.37 | 4.43 | 3.88 | 4.25 | 4.54 |
| Portfolio turnover | 43 | 29 | 63 | 54 | 59 |
| Net assets at end of period (000 omitted) | $27,131 | $28,563 | $38,430 | $41,171 | $43,696 |
See Notes to Financial Statements
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (g) | The per share amount varies from the net realized and unrealized gain/loss for the period because of the timing of sales of fund shares and the per share amount of realized and unrealized gains and losses at such time. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
Notes to Financial Statements
(1) Business and Organization
MFS High Yield Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in high-yield securities rated below investment grade. Investments in below investment grade quality securities can involve a substantially greater risk of default or can already be in default, and their values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. For put options, the position may be valued at the last daily ask quotation if there are no trades reported during the day. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at
Notes to Financial Statements - continued
the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments, such as forward foreign currency exchange contracts. The following is a summary of the levels used as of December 31, 2023 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| United States | $— | $73,500 | $397,130 | $470,630 |
| Luxembourg | — | 299,628 | — | 299,628 |
| United Kingdom | — | 2,408 | — | 2,408 |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | — | 1,268,579 | — | 1,268,579 |
| U.S. Corporate Bonds | — | 194,719,825 | — | 194,719,825 |
| Asset-Backed Securities (including CDOs) | — | 141 | — | 141 |
| Foreign Bonds | — | 39,096,380 | — | 39,096,380 |
| Mutual Funds | 6,400,101 | — | — | 6,400,101 |
| Total | $6,400,101 | $235,460,461 | $397,130 | $242,257,692 |
| Other Financial Instruments | | | | |
| Forward Foreign Currency Exchange Contracts – Assets | $— | $3,665 | $— | $3,665 |
| Forward Foreign Currency Exchange Contracts – Liabilities | — | (71,460) | — | (71,460) |
For further information regarding security characteristics, see the Portfolio of Investments.
The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. The table presents the activity of level 3 securities held at the beginning and the end of the period.
Notes to Financial Statements - continued
| | Equity
Securities |
| Balance as of 12/31/22 | $502,144 |
| Realized gain (loss) | 138,953 |
| Change in unrealized appreciation or depreciation | (105,014) |
| Sales | (138,953) |
| Balance as of 12/31/23 | $397,130 |
The net change in unrealized appreciation or depreciation from investments held as level 3 at December 31, 2023 is $23,560. At December 31, 2023, the fund held one level 3 security.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives — The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were purchased options, futures contracts, and forward foreign currency exchange contracts. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund's period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at December 31, 2023 as reported in the Statement of Assets and Liabilities:
| | | Fair Value (a) |
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Equity | Purchased Option Contracts | $73,500 | $— |
| Foreign Exchange | Forward Foreign Currency Exchange Contracts | 3,665 | (71,460) |
| Total | | $77,165 | $(71,460) |
(a) The value of purchased options outstanding is included in investments in unaffiliated issuers, at value, within the Statement of Assets and Liabilities.
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended December 31, 2023 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts | Unaffiliated Issuers
(Purchased
Options) |
| Interest Rate | $(276,632) | $— | $— |
| Foreign Exchange | — | (44,870) | — |
| Equity | — | — | (130,822) |
| Total | $(276,632) | $(44,870) | $(130,822) |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended December 31, 2023 as reported in the Statement of Operations:
Notes to Financial Statements - continued
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts | Unaffiliated Issuers
(Purchased
Options) |
| Interest Rate | $(12,011) | $— | $— |
| Foreign Exchange | — | 24,881 | — |
| Equity | — | — | (105,475) |
| Total | $(12,011) | $24,881 | $(105,475) |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a credit support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
Purchased Options — The fund purchased put options for a premium. Purchased put options entitle the holder to sell a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing put options may hedge against an anticipated decline in the value of portfolio securities or currency or decrease the fund's exposure to an underlying instrument.
The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased put options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased put option, the premium paid is offset against the proceeds on the sale of the underlying security or financial instrument in order to determine the realized gain or loss on investments.
Whether or not the option is exercised, the fund's maximum risk of loss from purchasing an option is the amount of premium paid. All option contracts involve credit risk if the counterparty to the option contract fails to perform. For uncleared options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Futures Contracts — The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Notes to Financial Statements - continued
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Forward Foreign Currency Exchange Contracts — The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on forward foreign currency exchange contracts.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Investment transactions are recorded on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Notes to Financial Statements - continued
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to amortization of premium and accretion of discount of debt securities, wash sale loss deferrals, and derivative transactions.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/23 | Year ended
12/31/22 |
| Ordinary income (including any short-term capital gains) | $14,087,664 | $15,313,201 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/23 | |
| Cost of investments | $253,502,753 |
| Gross appreciation | 4,917,667 |
| Gross depreciation | (16,230,523) |
| Net unrealized appreciation (depreciation) | $(11,312,856) |
| Undistributed ordinary income | 14,514,123 |
| Capital loss carryforwards | (62,270,375) |
| Other temporary differences | 891 |
| Total distributable earnings (loss) | $(59,068,217) |
As of December 31, 2023, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(3,068,480) |
| Long-Term | (59,201,895) |
| Total | $(62,270,375) |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| Initial Class | $12,570,924 | | $13,629,653 |
| Service Class | 1,516,740 | | 1,683,548 |
| Total | $14,087,664 | | $15,313,201 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.70% |
| In excess of $1 billion | 0.65% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's
Notes to Financial Statements - continued
Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this management fee reduction amounted to $31,643, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.69% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.72% of average daily net assets for the Initial Class shares and 0.97% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this reduction amounted to $109,604, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares as well as shareholder servicing and account maintenance activities. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. The distribution and/or service fees are computed daily and paid monthly.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2023, the fee was $2,060, which equated to 0.0008% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2023, these costs amounted to $999.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is computed daily and paid monthly. The administrative services fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.0186% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
(4) Portfolio Securities
For the year ended December 31, 2023, purchases and sales of investments, other than purchased options with an expiration date of less than one year from the time of purchase and short-term obligations, were as follows:
| | Purchases | Sales |
| U.S. Government securities | $5,134,329 | $4,445,454 |
| Non-U.S. Government securities | 98,161,437 | 127,467,852 |
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
Notes to Financial Statements - continued
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 1,475,929 | $7,137,260 | | 1,232,053 | $6,076,787 |
| Service Class | 206,874 | 988,411 | | 157,991 | 780,121 |
| | 1,682,803 | $8,125,671 | | 1,390,044 | $6,856,908 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 2,680,368 | $12,570,924 | | 2,826,154 | $13,537,279 |
| Service Class | 327,590 | 1,516,740 | | 355,930 | 1,683,548 |
| | 3,007,958 | $14,087,664 | | 3,182,084 | $15,220,827 |
| Shares reacquired | | | | | |
| Initial Class | (8,024,383) | $(38,649,120) | | (9,883,702) | $(49,445,337) |
| Service Class | (1,173,620) | (5,594,957) | | (1,346,626) | (6,616,646) |
| | (9,198,003) | $(44,244,077) | | (11,230,328) | $(56,061,983) |
| Net change | | | | | |
| Initial Class | (3,868,086) | $(18,940,936) | | (5,825,495) | $(29,831,271) |
| Service Class | (639,156) | (3,089,806) | | (832,705) | (4,152,977) |
| | (4,507,242) | $(22,030,742) | | (6,658,200) | $(33,984,248) |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Conservative Allocation Portfolio, and the MFS Growth Allocation Portfolio were the owners of record of approximately 20%, 6%, and 6%, respectively, of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 14, 2024 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2023, the fund’s commitment fee and interest expense were $1,299 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $2,222,525 | $65,653,277 | $61,476,602 | $717 | $184 | $6,400,101 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $294,945 | $— |
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS High Yield Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS High Yield Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 2024
We have served as the auditor of one or more of the MFS investment companies since 1924.
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2024, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 57) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 69) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 72) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 69) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 68) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 68) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 62) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 67) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 67) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 66) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 55) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
John W. Clark, Jr. (k)
(age 56) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 55) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 56) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 47) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022) |
Amanda S. Mooradian (k)
(age 44) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 53) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 53) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
James O. Yost (k)
(age 63) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Caroselli, Jones and Otis are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
Trustees and Officers - continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Congress Street, Suite 1
Boston, MA 02114-2016 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
David Cole
Michael Skatrud | |
Board Review of Investment Advisory Agreement
MFS High Yield Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2023 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2022 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2022, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 4th quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 3rd quintile for the one-year period and the 4th quintile for the three-year period ended December 31, 2022 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In addition to considering the performance information provided in connection with the contract review meetings, the Trustees noted that, in light of the substandard relative performance of the Fund and the Fund’s retail counterpart, MFS High Income Fund, at the time of their contract review meetings in 2022, they had met at each of their regular meetings since then with MFS’ senior investment management personnel to discuss the performance of the Fund’s retail counterpart and MFS’ efforts improve its performance. The Trustees further noted that the total return performance (Class I shares) of the Fund’s retail counterpart, MFS High
Board Review of Investment Advisory Agreement - continued
Income Fund, which has substantially similar investment strategies, was in the 3rd quintile relative to the other funds in its Broadridge performance universe for the five-year period ended December 31, 2022. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each approximately at the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2023.
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2023
MFS® International
Growth Portfolio
MFS® Variable Insurance Trust II
MFS® International Growth Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS International Growth Portfolio
Portfolio structure
Top ten holdings
| SAP SE | 4.3% |
| Nestle S.A. | 3.9% |
| Roche Holding AG | 3.8% |
| Schneider Electric SE | 3.8% |
| Hitachi Ltd. | 3.8% |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | 3.3% |
| LVMH Moet Hennessy Louis Vuitton SE | 3.3% |
| Linde PLC | 3.0% |
| Heineken N.V. | 2.5% |
| AIA Group Ltd. | 2.2% |
GICS equity sectors (g)
| Industrials | 18.6% |
| Information Technology | 14.7% |
| Consumer Staples | 14.1% |
| Health Care | 13.3% |
| Materials | 12.4% |
| Consumer Discretionary | 11.1% |
| Financials | 10.0% |
| Communication Services | 2.8% |
| Energy | 1.2% |
| Utilities | 0.4% |
Issuer country weightings (x)
| France | 17.0% |
| Switzerland | 11.6% |
| Germany | 10.5% |
| Japan | 9.8% |
| United Kingdom | 9.1% |
| Canada | 5.8% |
| Netherlands | 4.7% |
| Taiwan | 4.3% |
| United States | 4.3% |
| Other Countries | 22.9% |
Currency exposure weightings (y)
| Euro | 35.0% |
| Swiss Franc | 11.6% |
| British Pound Sterling | 10.5% |
| Japanese Yen | 9.8% |
| Canadian Dollar | 5.8% |
| United States Dollar | 5.6% |
| Hong Kong Dollar | 5.1% |
| Taiwan Dollar | 4.3% |
| Indian Rupee | 3.7% |
| Other Currencies | 8.6% |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2023.
The portfolio is actively managed and current holdings may be different.
MFS International Growth Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2023, Initial Class shares of the MFS International Growth Portfolio (fund) provided a total return of 14.72%, while Service Class shares of the fund provided a total return of 14.39%. These compare with a return of 14.03% over the same period for the fund’s benchmark, the MSCI All Country World (ex-US) Growth Index (net div).
Market Environment
During the reporting period, central banks around the world had to combat the strongest inflationary pressures in four decades, fueled by the global fiscal response to the pandemic, disrupted supply chains and the dislocations to energy markets stemming from the war in Ukraine. Interest rates rose substantially, but the effects of a tighter monetary policy may not have been fully experienced yet, given that monetary policy works with long and variable lags. Strains resulting from the abrupt tightening of monetary policy began to affect some parts of the economy, most acutely among small and regional US banks, which suffered from deposit flight as depositors sought higher yields on their savings. Additionally, activity in the US housing sector has slowed as a result of higher mortgage rates. China’s abandonment of its Zero-COVID policy ushered in a brief uptick in economic activity in the world’s second-largest economy in early 2023, although its momentum soon stalled as the focus turned to the country’s highly indebted property development sector. In developed markets, consumer demand for services remained stronger than the demand for goods.
Early on, policymakers found themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, central banks focused on controlling price pressures while also confronting increasing financial stability concerns. Central banks had to juggle achieving their inflation mandates while using macroprudential tools (financial policies aimed at safeguarding the stability of the financial system) to keep banking systems liquid, a potentially difficult balancing act, and one that suggested that we may be nearing a peak in policy rates. As inflationary pressures eased toward the end of the period, financial conditions loosened in anticipation of easier monetary policy, boosting the market’s appetite for risk. Rapid advancements in artificial intelligence were a focus for investors.
Normalizing supply chains, low levels of unemployment across developed markets and signs that inflation levels have peaked were supportive factors for the macroeconomic backdrop.
Contributors to Performance
Relative to the MSCI All Country World (ex-U.S.) Growth Index, stock selection within the industrials sector contributed to the fund’s performance, led by its overweight positions in diversified industrial manufacturer Rolls-Royce (United Kingdom), electronics company Hitachi (Japan), electrical distribution equipment manufacturer Schneider Electric (France), and intelligent lock and security solutions provider Assa Abloy (Sweden). The share price of Rolls Royce climbed as the company posted much higher-than-expected LTSA (long-term service agreement) advances.
Elsewhere, the fund’s overweight holdings of enterprise applications company SAP (Germany) and industrial and medical gas supplier Air Liquide (France) helped relative returns. The stock price of SAP rose as the company reported revenue and earnings above consensus estimates, driven by strong growth in licenses. The timing of the fund’s ownership in shares of banking services provider Grupo Financiero Banorte (Mexico) and e-commerce platform manager Meituan(h) (China), and its holdings of industrial gas supplier Linde(b), also benefited relative returns. Avoiding shares of poor-performing online direct sales company JD.com (China) further strengthened the fund’s relative returns.
During the reporting period, the fund's relative currency exposure, resulting primarily from differences between the fund's and the benchmark's exposures to holdings of securities denominated in foreign currencies, contributed to relative performance. All of MFS' investment decisions are driven by the fundamentals of each individual opportunity and as such, it is common for our funds to have different currency exposure than the benchmark.
Detractors from Performance
Security selection within both the health care and consumer staples sectors detracted from the fund’s relative performance. Within the health care sector, not owning shares of strong-performing pharmaceutical company Novo Nordisk (Denmark), and the fund’s holdings of crop science and pharmaceuticals company Bayer(b) (Germany), held back relative results. The fund’s overweight positions in advanced molecular testing solutions provider QIAGEN (Netherlands) and pharmaceutical and diagnostic company Roche Holding (Switzerland) further weakened relative performance. Within the consumer staples sector, the fund’s overweight holdings of premium drinks distributor Diageo (United Kingdom) and wine and alcoholic beverage producer Pernod Ricard (France) weighed on relative returns. The share price of Diageo declined as the company lowered its short and medium-term guidance due to weak demand in its Latin America operations and excess inventory.
MFS International Growth Portfolio
Management Review - continued
Stocks in other sectors that were among the fund’s top relative detractors included its overweight positions in insurance company AIA Group (Hong Kong) and gold-focused royalty and streaming company Franco-Nevada (Canada). Additionally, not owning shares of strong-performing cloud-based e-commerce platform operator Shopify (Canada) and semiconductor production equipment manufacturer Tokyo Electron (Japan) also weakened relative returns as both stocks outperformed the benchmark during the reporting period.
Respectfully,
Portfolio Manager(s)
Matthew Barrett and Kevin Dwan
| (b) | Security is not a benchmark constituent. |
| (h) | Security was not held in the portfolio at period end. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS International Growth Portfolio
Performance Summary Through 12/31/23
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/23
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 6/03/1996 | 14.72% | 9.47% | 6.36% |
| Service Class | 8/24/2001 | 14.39% | 9.20% | 6.09% |
Comparative benchmark(s)
| MSCI All Country World (ex-U.S.) Growth Index (net div) (f) | 14.03% | 7.49% | 4.55% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
MSCI All Country World (ex-U.S.) Growth Index(e) (net div) – a market capitalization-weighted index that is designed to measure equity market performance for growth securities in the global developed and emerging markets, excluding the U.S.
It is not possible to invest directly in an index.
| (e) | Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
MFS International Growth Portfolio
Performance Summary – continued
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS International Growth Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2023 through December 31, 2023
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2023 through December 31, 2023.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/23 | Ending
Account Value
12/31/23 | Expenses
Paid During
Period (p)
7/01/23-12/31/23 |
| Initial Class | Actual | 0.88% | $1,000.00 | $1,020.31 | $4.48 |
| Hypothetical (h) | 0.88% | $1,000.00 | $1,020.77 | $4.48 |
| Service Class | Actual | 1.13% | $1,000.00 | $1,018.47 | $5.75 |
| Hypothetical (h) | 1.13% | $1,000.00 | $1,019.51 | $5.75 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS International Growth Portfolio
Portfolio of Investments − 12/31/23
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 98.6% |
| Aerospace & Defense – 2.4% | |
| Rolls-Royce Holdings PLC (a) | | 1,312,790 | $ 5,015,024 |
| Singapore Technologies Engineering Ltd. | | 258,900 | 763,115 |
| | | | | $5,778,139 |
| Alcoholic Beverages – 5.9% | |
| Diageo PLC | | 122,132 | $ 4,446,095 |
| Heineken N.V. | | 58,201 | 5,907,237 |
| Pernod Ricard S.A. | | 21,318 | 3,759,558 |
| | | | | $14,112,890 |
| Apparel Manufacturers – 4.5% | |
| Burberry Group PLC | | 59,173 | $ 1,068,016 |
| Kering S.A. | | 4,229 | 1,862,773 |
| LVMH Moet Hennessy Louis Vuitton SE | | 9,695 | 7,851,572 |
| | | | | $10,782,361 |
| Brokerage & Asset Managers – 2.0% | |
| Deutsche Boerse AG | | 14,547 | $ 2,995,034 |
| London Stock Exchange Group PLC | | 15,106 | 1,785,696 |
| | | | | $4,780,730 |
| Business Services – 2.1% | |
| Experian PLC | | 79,541 | $ 3,246,410 |
| Nomura Research Institute Ltd. | | 58,000 | 1,686,936 |
| | | | | $4,933,346 |
| Chemicals – 0.6% | |
| UPL Ltd. | | 193,670 | $ 1,366,754 |
| Computer Software – 6.7% | |
| Dassault Systemes SE | | 57,945 | $ 2,829,642 |
| Kingsoft Corp. | | 201,200 | 620,980 |
| Oracle Corp. Japan | | 19,200 | 1,480,170 |
| SAP SE | | 67,580 | 10,405,899 |
| Wisetech Global Ltd. | | 13,992 | 718,641 |
| | | | | $16,055,332 |
| Computer Software - Systems – 7.7% | |
| Amadeus IT Group S.A. | | 72,860 | $ 5,218,546 |
| Cap Gemini S.A. | | 19,871 | 4,140,532 |
| Hitachi Ltd. | | 125,500 | 9,052,021 |
| | | | | $18,411,099 |
| Construction – 0.4% | |
| Kingspan Group PLC | | 11,148 | $ 964,856 |
| Consumer Products – 3.4% | |
| AmorePacific Corp. (a) | | 16,405 | $ 1,840,011 |
| Haleon PLC | | 377,728 | 1,548,652 |
| KOSE Corp. (l) | | 4,700 | 352,500 |
| Reckitt Benckiser Group PLC | | 64,730 | 4,471,939 |
| | | | | $8,213,102 |
MFS International Growth Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Electrical Equipment – 4.2% | |
| Mitsubishi Heavy Industries Ltd. | | 16,300 | $ 952,683 |
| Schneider Electric SE | | 45,421 | 9,114,907 |
| | | | | $10,067,590 |
| Electronics – 4.9% | |
| ASML Holding N.V. | | 3,536 | $ 2,661,062 |
| SK Hynix, Inc. | | 9,332 | 1,018,916 |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | 77,009 | 8,008,936 |
| | | | | $11,688,914 |
| Energy - Independent – 0.9% | |
| Reliance Industries Ltd. | | 69,948 | $ 2,172,863 |
| Entertainment – 0.2% | |
| Lottery Corp. Ltd. | | 145,421 | $ 479,630 |
| Food & Beverages – 3.9% | |
| Nestle S.A. | | 80,812 | $ 9,369,215 |
| Food & Drug Stores – 0.5% | |
| Ocado Group PLC (a) | | 29,786 | $ 287,940 |
| Sugi Holdings Co. Ltd. | | 20,500 | 942,418 |
| | | | | $1,230,358 |
| Gaming & Lodging – 2.2% | |
| Aristocrat Leisure Ltd. | | 57,569 | $ 1,601,385 |
| Flutter Entertainment PLC (a) | | 17,961 | 3,191,422 |
| Sands China Ltd. (a) | | 207,600 | 607,500 |
| | | | | $5,400,307 |
| Insurance – 2.6% | |
| AIA Group Ltd. | | 601,400 | $ 5,241,118 |
| Ping An Insurance Co. of China Ltd., “H” | | 225,500 | 1,020,865 |
| | | | | $6,261,983 |
| Internet – 2.3% | |
| LY Corp. | | 465,200 | $ 1,648,655 |
| NAVER Corp. | | 9,217 | 1,595,194 |
| Tencent Holdings Ltd. | | 59,100 | 2,222,163 |
| | | | | $5,466,012 |
| Leisure & Toys – 0.4% | |
| Prosus N.V. | | 33,617 | $ 1,001,454 |
| Machinery & Tools – 5.6% | |
| Assa Abloy AB | | 160,389 | $ 4,616,369 |
| Delta Electronics, Inc. | | 235,000 | 2,400,499 |
| GEA Group AG | | 61,642 | 2,564,793 |
| RB Global, Inc. | | 56,361 | 3,771,578 |
| | | | | $13,353,239 |
| Major Banks – 1.3% | |
| DBS Group Holdings Ltd. | | 120,200 | $ 3,042,911 |
MFS International Growth Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Medical & Health Technology & Services – 0.3% | |
| Alcon, Inc. | | 9,445 | $ 737,138 |
| Medical Equipment – 4.8% | |
| EssilorLuxottica | | 24,844 | $ 4,980,659 |
| QIAGEN N.V. (a) | | 52,946 | 2,302,920 |
| Sonova Holding AG | | 6,571 | 2,143,847 |
| Terumo Corp. | | 62,300 | 2,042,203 |
| | | | | $11,469,629 |
| Natural Gas - Distribution – 0.4% | |
| China Resources Gas Group Ltd. | | 263,300 | $ 863,223 |
| Oil Services – 0.3% | |
| Tenaris S.A. | | 44,929 | $ 780,942 |
| Other Banks & Diversified Financials – 5.0% | |
| Credicorp Ltd. | | 14,122 | $ 2,117,312 |
| Element Fleet Management Corp. | | 136,211 | 2,216,301 |
| Grupo Financiero Banorte S.A. de C.V. | | 257,714 | 2,591,558 |
| HDFC Bank Ltd. | | 152,751 | 3,137,578 |
| Kasikornbank Co. Ltd. | | 216,100 | 854,713 |
| Kotak Mahindra Bank Ltd. | | 51,975 | 1,191,792 |
| | | | | $12,109,254 |
| Pharmaceuticals – 8.2% | |
| Bayer AG | | 52,546 | $ 1,950,815 |
| Chugai Pharmaceutical Co. Ltd. | | 45,100 | 1,708,682 |
| Hypera S.A. | | 105,229 | 774,443 |
| Merck KGaA | | 12,951 | 2,060,235 |
| Novartis AG | | 40,806 | 4,117,716 |
| Roche Holding AG | | 31,519 | 9,162,827 |
| | | | | $19,774,718 |
| Precious Metals & Minerals – 2.3% | |
| Agnico Eagle Mines Ltd. | | 56,485 | $ 3,096,966 |
| Franco-Nevada Corp. | | 21,244 | 2,353,105 |
| | | | | $5,450,071 |
| Railroad & Shipping – 1.0% | |
| Canadian Pacific Kansas City Ltd. | | 29,448 | $ 2,329,971 |
| Restaurants – 1.0% | |
| Sodexo | | 8,793 | $ 967,015 |
| Yum China Holdings, Inc. | | 23,713 | 1,006,142 |
| Yum China Holdings, Inc. | | 10,300 | 438,197 |
| | | | | $2,411,354 |
| Specialty Chemicals – 9.5% | |
| Air Liquide S.A. | | 26,428 | $ 5,138,335 |
| Akzo Nobel N.V. | | 19,354 | 1,598,593 |
| Linde PLC | | 17,327 | 7,116,372 |
| Nitto Denko Corp. | | 31,400 | 2,349,433 |
| Resonac Holdings Corp. (l) | | 69,100 | 1,377,099 |
| Sika AG | | 7,281 | 2,369,431 |
MFS International Growth Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Specialty Chemicals – continued | |
| Symrise AG | | 26,204 | $ 2,882,377 |
| | | | | $22,831,640 |
| Specialty Stores – 0.5% | |
| Alibaba Group Holding Ltd. | | 135,900 | $ 1,315,751 |
| Telecommunications - Wireless – 0.2% | |
| Advanced Info Service Public Co. Ltd. | | 96,000 | $ 610,327 |
| Tobacco – 0.4% | |
| ITC Ltd. | | 161,035 | $ 894,255 |
| Total Common Stocks (Identified Cost, $166,452,684) | | $236,511,358 |
| Investment Companies (h) – 0.9% |
| Money Market Funds – 0.9% | |
| MFS Institutional Money Market Portfolio, 5.42% (v) (Identified Cost, $2,059,433) | | | 2,059,451 | $ 2,059,863 |
| Other Assets, Less Liabilities – 0.5% | | 1,165,441 |
| Net Assets – 100.0% | $239,736,662 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $2,059,863 and $236,511,358, respectively. | | | |
| (l) | A portion of this security is on loan. See Note 2 for additional information. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
See Notes to Financial Statements
MFS International Growth Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/23Assets | |
| Investments in unaffiliated issuers, at value, including $1,528,894 of securities on loan (identified cost, $166,452,684) | $236,511,358 |
| Investments in affiliated issuers, at value (identified cost, $2,059,433) | 2,059,863 |
| Receivables for | |
| Fund shares sold | 846,861 |
| Interest and dividends | 804,626 |
| Receivable from investment adviser | 4,023 |
| Other assets | 1,549 |
| Total assets | $240,228,280 |
| Liabilities | |
| Payable to custodian | $1,086 |
| Payables for | |
| Fund shares reacquired | 197,920 |
| Payable to affiliates | |
| Administrative services fee | 441 |
| Shareholder servicing costs | 15 |
| Distribution and/or service fees | 3,286 |
| Deferred foreign capital gains tax expense payable | 203,615 |
| Accrued expenses and other liabilities | 85,255 |
| Total liabilities | $491,618 |
| Net assets | $239,736,662 |
| Net assets consist of | |
| Paid-in capital | $169,035,279 |
| Total distributable earnings (loss) | 70,701,383 |
| Net assets | $239,736,662 |
| Shares of beneficial interest outstanding | 16,477,735 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $118,996,357 | 8,112,397 | $14.67 |
| Service Class | 120,740,305 | 8,365,338 | 14.43 |
See Notes to Financial Statements
MFS International Growth Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/23 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $4,553,871 |
| Dividends from affiliated issuers | 174,414 |
| Interest | 2,204 |
| Income on securities loaned | 1,782 |
| Other | 169 |
| Foreign taxes withheld | (529,849) |
| Total investment income | $4,202,591 |
| Expenses | |
| Management fee | $1,867,441 |
| Distribution and/or service fees | 241,577 |
| Shareholder servicing costs | 4,042 |
| Administrative services fee | 40,174 |
| Independent Trustees' compensation | 5,430 |
| Custodian fee | 73,228 |
| Shareholder communications | 1,970 |
| Audit and tax fees | 73,098 |
| Legal fees | 1,087 |
| Miscellaneous | 23,260 |
| Total expenses | $2,331,307 |
| Reduction of expenses by investment adviser | (262,043) |
| Net expenses | $2,069,264 |
| Net investment income (loss) | $2,133,327 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (includes $70,992 foreign capital gains tax) | $578,020 |
| Affiliated issuers | 194 |
| Foreign currency | 24,906 |
| Net realized gain (loss) | $603,120 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (includes $11,070 increase in deferred foreign capital gains tax) | $26,376,033 |
| Affiliated issuers | (448) |
| Translation of assets and liabilities in foreign currencies | 26,163 |
| Net unrealized gain (loss) | $26,401,748 |
| Net realized and unrealized gain (loss) | $27,004,868 |
| Change in net assets from operations | $29,138,195 |
See Notes to Financial Statements
MFS International Growth Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/23 | 12/31/22 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $2,133,327 | $1,503,969 |
| Net realized gain (loss) | 603,120 | 6,443,302 |
| Net unrealized gain (loss) | 26,401,748 | (39,921,168) |
| Change in net assets from operations | $29,138,195 | $(31,973,897) |
| Total distributions to shareholders | $(8,452,427) | $(11,842,247) |
| Change in net assets from fund share transactions | $31,927,707 | $18,723,642 |
| Total change in net assets | $52,613,475 | $(25,092,502) |
| Net assets | | |
| At beginning of period | 187,123,187 | 212,215,689 |
| At end of period | $239,736,662 | $187,123,187 |
See Notes to Financial Statements
MFS International Growth Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $13.35 | $16.78 | $16.09 | $14.26 | $12.78 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.17 | $0.13 | $0.09 | $0.10 | $0.21 |
| Net realized and unrealized gain (loss) | 1.76 | (2.65) | 1.39 | 2.12 | 3.07 |
| Total from investment operations | $1.93 | $(2.52) | $1.48 | $2.22 | $3.28 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.16) | $(0.09) | $(0.09) | $(0.21) | $(0.18) |
| From net realized gain | (0.45) | (0.82) | (0.70) | (0.18) | (1.62) |
| Total distributions declared to shareholders | $(0.61) | $(0.91) | $(0.79) | $(0.39) | $(1.80) |
| Net asset value, end of period (x) | $14.67 | $13.35 | $16.78 | $16.09 | $14.26 |
| Total return (%) (k)(r)(s)(x) | 14.72 | (14.95) | 9.27 | 15.84 | 27.30 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.01 | 1.01 | 1.01 | 1.04 | 1.05 |
| Expenses after expense reductions | 0.88 | 0.88 | 0.88 | 0.88 | 0.88 |
| Net investment income (loss) | 1.16 | 0.93 | 0.52 | 0.72 | 1.49 |
| Portfolio turnover | 17 | 11 | 14 | 26 | 7 |
| Net assets at end of period (000 omitted) | $118,996 | $103,798 | $124,671 | $120,291 | $112,259 |
| Service Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $13.15 | $16.55 | $15.90 | $14.11 | $12.65 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.12 | $0.09 | $0.04 | $0.06 | $0.16 |
| Net realized and unrealized gain (loss) | 1.74 | (2.61) | 1.38 | 2.09 | 3.07 |
| Total from investment operations | $1.86 | $(2.52) | $1.42 | $2.15 | $3.23 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.13) | $(0.06) | $(0.07) | $(0.18) | $(0.15) |
| From net realized gain | (0.45) | (0.82) | (0.70) | (0.18) | (1.62) |
| Total distributions declared to shareholders | $(0.58) | $(0.88) | $(0.77) | $(0.36) | $(1.77) |
| Net asset value, end of period (x) | $14.43 | $13.15 | $16.55 | $15.90 | $14.11 |
| Total return (%) (k)(r)(s)(x) | 14.39 | (15.18) | 8.99 | 15.50 | 27.11 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.26 | 1.26 | 1.27 | 1.29 | 1.30 |
| Expenses after expense reductions | 1.13 | 1.13 | 1.13 | 1.13 | 1.13 |
| Net investment income (loss) | 0.87 | 0.65 | 0.22 | 0.44 | 1.18 |
| Portfolio turnover | 17 | 11 | 14 | 26 | 7 |
| Net assets at end of period (000 omitted) | $120,740 | $83,325 | $87,545 | $51,852 | $34,616 |
See Notes to Financial Statements
MFS International Growth Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS International Growth Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS International Growth Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions. Investments in emerging markets can involve additional and greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, accounting, and auditing systems, greater government involvement in the economy, greater risk of new or inconsistent government treatment of or restrictions on issuers and instruments, and greater political, social, and economic instability than developed markets.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading
MFS International Growth Portfolio
Notes to Financial Statements - continued
does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2023 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| France | $40,644,993 | $— | $— | $40,644,993 |
| Switzerland | 27,900,174 | — | — | 27,900,174 |
| Germany | 25,162,073 | — | — | 25,162,073 |
| Japan | 23,592,800 | — | — | 23,592,800 |
| United Kingdom | 21,869,772 | — | — | 21,869,772 |
| Canada | 13,767,921 | — | — | 13,767,921 |
| Netherlands | 11,168,346 | — | — | 11,168,346 |
| Taiwan | 10,409,435 | — | — | 10,409,435 |
| India | 8,763,242 | — | — | 8,763,242 |
| Other Countries | 47,313,441 | 5,919,161 | — | 53,232,602 |
| Mutual Funds | 2,059,863 | — | — | 2,059,863 |
| Total | $232,652,060 | $5,919,161 | $— | $238,571,221 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of
MFS International Growth Portfolio
Notes to Financial Statements - continued
which were classified as equity securities in the fund’s Portfolio of Investments, with a fair value of $1,528,894. The fair value of the fund’s investment securities on loan is presented gross in the Statement of Assets and Liabilities. These loans were collateralized by U.S. Treasury Obligations of $1,613,724 held by the custodian. The collateral on securities loaned exceeded the value of securities on loan at period end. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Investment transactions are recorded on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to passive foreign investment companies and wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/23 | Year ended
12/31/22 |
| Ordinary income (including any short-term capital gains) | $2,165,974 | $1,936,167 |
| Long-term capital gains | 6,286,453 | 9,906,080 |
| Total distributions | $8,452,427 | $11,842,247 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
MFS International Growth Portfolio
Notes to Financial Statements - continued
| As of 12/31/23 | |
| Cost of investments | $170,945,623 |
| Gross appreciation | 79,034,684 |
| Gross depreciation | (11,409,086) |
| Net unrealized appreciation (depreciation) | $67,625,598 |
| Undistributed ordinary income | 3,072,463 |
| Undistributed long-term capital gain | 201,321 |
| Other temporary differences | (197,999) |
| Total distributable earnings (loss) | $70,701,383 |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/23 | | Year
ended
12/31/22 |
| Initial Class | $4,565,226 | | $6,790,940 |
| Service Class | 3,887,201 | | 5,051,307 |
| Total | $8,452,427 | | $11,842,247 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.90% |
| In excess of $1 billion and up to $2 billion | 0.80% |
| In excess of $2 billion | 0.70% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this management fee reduction amounted to $26,527, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.89% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.88% of average daily net assets for the Initial Class shares and 1.13% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this reduction amounted to $235,516, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these
MFS International Growth Portfolio
Notes to Financial Statements - continued
participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares as well as shareholder servicing and account maintenance activities. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. The distribution and/or service fees are computed daily and paid monthly.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2023, the fee was $2,896, which equated to 0.0014% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2023, these costs amounted to $1,146.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is computed daily and paid monthly. The administrative services fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.0194% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
(4) Portfolio Securities
For the year ended December 31, 2023, purchases and sales of investments, other than short-term obligations, aggregated $59,267,965 and $33,736,250, respectively.
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 1,326,911 | $18,807,870 | | 1,217,168 | $17,134,032 |
| Service Class | 3,090,390 | 42,569,082 | | 4,750,270 | 66,664,792 |
| | 4,417,301 | $61,376,952 | | 5,967,438 | $83,798,824 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 328,670 | $4,565,226 | | 514,465 | $6,790,940 |
| Service Class | 284,152 | 3,887,201 | | 387,965 | 5,051,307 |
| | 612,822 | $8,452,427 | | 902,430 | $11,842,247 |
| Shares reacquired | | | | | |
| Initial Class | (1,319,223) | $(18,889,920) | | (1,383,930) | $(19,215,679) |
| Service Class | (1,346,630) | (19,011,752) | | (4,089,695) | (57,701,750) |
| | (2,665,853) | $(37,901,672) | | (5,473,625) | $(76,917,429) |
| Net change | | | | | |
| Initial Class | 336,358 | $4,483,176 | | 347,703 | $4,709,293 |
| Service Class | 2,027,912 | 27,444,531 | | 1,048,540 | 14,014,349 |
| | 2,364,270 | $31,927,707 | | 1,396,243 | $18,723,642 |
MFS International Growth Portfolio
Notes to Financial Statements - continued
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Growth Allocation Portfolio, and the MFS Conservative Allocation Portfolio were the owners of record of approximately 13%, 6%, and 2%, respectively, of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 14, 2024 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2023, the fund’s commitment fee and interest expense were $978 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $2,596,015 | $41,629,628 | $42,165,526 | $194 | $(448) | $2,059,863 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $174,414 | $— |
MFS International Growth Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS International Growth Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS International Growth Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 2024
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS International Growth Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2024, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 57) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 69) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 72) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 69) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 68) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 68) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 62) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 67) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 67) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 66) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 55) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
MFS International Growth Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
John W. Clark, Jr. (k)
(age 56) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 55) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 56) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 47) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022) |
Amanda S. Mooradian (k)
(age 44) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 53) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 53) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
James O. Yost (k)
(age 63) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Caroselli, Jones and Otis are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
MFS International Growth Portfolio
Trustees and Officers - continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Congress Street, Suite 1
Boston, MA 02114-2016 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Matthew Barrett
Kevin Dwan
| |
MFS International Growth Portfolio
Board Review of Investment Advisory Agreement
MFS International Growth Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2023 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2022 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2022, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 1st quintile for each of the one- and three-year periods ended December 31, 2022 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS International Growth Portfolio
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate was approximately at the Broadridge expense group median and the Fund’s total expense ratio was lower than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2023.
'
MFS International Growth Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $6,916,000 as capital gain dividends paid during the fiscal year.
Income derived from foreign sources was $4,435,307. The fund intends to pass through foreign tax credits of $542,064 for the fiscal year.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2023
MFS® International Intrinsic
Value Portfolio
MFS® Variable Insurance Trust II
MFS® International Intrinsic Value Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS International Intrinsic Value Portfolio
Portfolio structure
Top ten holdings
| Schneider Electric SE | 3.5% |
| TotalEnergies SE | 3.0% |
| Cadence Design Systems, Inc. | 2.8% |
| Samsung Electronics Co. Ltd. | 2.7% |
| Franco-Nevada Corp. | 2.6% |
| Legrand S.A. | 2.6% |
| Deutsche Boerse AG | 2.2% |
| UBS Group AG | 2.0% |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | 1.9% |
| Pernod Ricard S.A. | 1.9% |
GICS equity sectors (g)
| Industrials | 20.7% |
| Information Technology | 18.7% |
| Financials | 17.4% |
| Materials | 11.7% |
| Consumer Staples | 11.2% |
| Energy | 7.0% |
| Health Care | 6.7% |
| Consumer Discretionary | 3.4% |
| Real Estate | 1.2% |
Issuer country weightings (x)
| France | 16.8% |
| Japan | 15.3% |
| United Kingdom | 13.6% |
| United States | 10.2% |
| Germany | 9.8% |
| Switzerland | 8.9% |
| Canada | 4.4% |
| Ireland | 4.2% |
| Spain | 2.9% |
| Other Countries | 13.9% |
Currency exposure weightings (y)
| Euro | 36.5% |
| Japanese Yen | 15.3% |
| British Pound Sterling | 12.0% |
| United States Dollar | 11.8% |
| Swiss Franc | 8.9% |
| Canadian Dollar | 4.4% |
| South Korean Won | 2.7% |
| Taiwan Dollar | 1.9% |
| Australian Dollar | 1.7% |
| Other Currencies | 4.8% |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2023.
The portfolio is actively managed and current holdings may be different.
MFS International Intrinsic Value Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2023, Initial Class shares of the MFS International Intrinsic Value Portfolio (fund) provided a total return of 17.66%, while Service Class shares of the fund provided a total return of 17.37%. These compare with a return of 18.24% over the same period for the fund’s benchmark, the MSCI EAFE Index (net div).
Market Environment
During the reporting period, central banks around the world had to combat the strongest inflationary pressures in four decades, fueled by the global fiscal response to the pandemic, disrupted supply chains and the dislocations to energy markets stemming from the war in Ukraine. Interest rates rose substantially, but the effects of a tighter monetary policy may not have been fully experienced yet, given that monetary policy works with long and variable lags. Strains resulting from the abrupt tightening of monetary policy began to affect some parts of the economy, most acutely among small and regional US banks, which suffered from deposit flight as depositors sought higher yields on their savings. Additionally, activity in the US housing sector has slowed as a result of higher mortgage rates. China’s abandonment of its Zero-COVID policy ushered in a brief uptick in economic activity in the world’s second-largest economy in early 2023, although its momentum soon stalled as the focus turned to the country’s highly indebted property development sector. In developed markets, consumer demand for services remained stronger than the demand for goods.
Early on, policymakers found themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, central banks focused on controlling price pressures while also confronting increasing financial stability concerns. Central banks had to juggle achieving their inflation mandates while using macroprudential tools (financial policies aimed at safeguarding the stability of the financial system) to keep banking systems liquid, a potentially difficult balancing act, and one that suggested that we may be nearing a peak in policy rates. As inflationary pressures eased toward the end of the period, financial conditions loosened in anticipation of easier monetary policy, boosting the market’s appetite for risk. Rapid advancements in artificial intelligence were a focus for investors.
Normalizing supply chains, low levels of unemployment across developed markets and signs that inflation levels have peaked were supportive factors for the macroeconomic backdrop.
Detractors from Performance
Relative to the MSCI EAFE Index, stock selection within both the financials and materials sectors weakened performance over the reporting period. Within the financials sector, the fund’s overweight positions in international banking and financial services providers NatWest Group (United Kingdom), Resona Holdings (Japan), and Bank of Ireland Group (Ireland) held back relative returns. The share price of NatWest Group fell as the company reported weaker-than-expected net interest margin results and a decline in deposit balances. Within the materials sector, the fund’s position in gold-focused royalty and streaming company Franco-Nevada(b) hindered relative results. The share price of Franco-Nevada declined as the company reported a softer-than-expected volume of mined materials and management lowered guidance due to protest disruptions in its Panamanian operations. Additionally, the higher cost of sales of royalty streams and oil gases further weighed on the share price performance.
The fund’s overweight allocation to the consumer staples sector also held back relative performance, led by overweight positions in alcoholic beverages distributors Pernod Ricard (France) and Diageo (United Kingdom). The share price of Pernod Ricard declined due to lower-than-expected revenue growth, driven in part by slowing demand in North America and Asia.
Turning to other sectors, not holding shares of strong-performing pharmaceutical company Novo Nordisk (Denmark), and the fund’s overweight positions in electronic products manufacturer Hirose Electric (Japan) and petroleum exploration and production company Woodside Energy Group (Australia), further detracted from relative returns.
The fund's cash and/or cash equivalents position during the period was another detractor from relative performance. Under normal market conditions, the fund strives to be fully invested and generally holds cash to buy new holdings and to provide liquidity. In a period when equity markets rose, as measured by the fund's benchmark, holding cash hurt performance versus the benchmark, which has no cash position.
Contributors to Performance
The fund’s overweight allocation to both the information technology and industrials sectors benefited relative performance over the reporting period. Within the information technology sector, the fund’s positions in integrated circuits and electronic devices developer Cadence Design Systems(b) and microchip and electronics manufacturer Samsung Electronics(b) (South Korea), and its overweight position in precision cutting, grinding, and polishing machines manufacturer DISCO (Japan), aided relative results. The share price of Cadence Design Systems rose on the back of strong revenue and margin results in its functional verification and system design analysis divisions. Additionally, strong chip design activity, an expanding customer base, and increased confidence in its hardware prototyping business appeared to have further supported the stock. Within the industrials sector, the fund’s overweight positions in electrical distribution equipment manufacturer Schneider Electric (France) and wiring devices and cable systems manufacturer
MFS International Intrinsic Value Portfolio
Management Review - continued
Legrand (France), combined with its holdings of discount airline operator Ryanair Holdings(b) (Ireland), contributed to relative returns. The share price of Schneider Electric advanced on stronger-than-expected organic sales growth in its energy management segment, led by robust demand for data management center equipment and a bottom-line upside as costs and expenses were lower than anticipated.
Stocks in other sectors that strengthened relative performance included the fund’s overweight positions in investment management and banking firm UBS Group (Switzerland) and building materials producer CRH (Ireland), and its holdings of oil and gas exploration and production company Petroleo Brasileiro(b) (Brazil). The share price of UBS Group advanced as the company reported above-consensus earnings results, primarily due to lower-than-expected funding costs and operating expenses paired with encouraging new money and net new deposit trends. The stock price of UBS Group also responded positively after the company announced that it had voluntarily terminated the government guarantee agreement related to its Credit Suisse acquisition. Not owning shares of poor-performing insurance company AIA Group (Hong Kong) further supported the fund’s relative returns.
During the reporting period, the fund's relative currency exposure, resulting primarily from differences between the fund's and the benchmark's exposures to holdings of securities denominated in foreign currencies, was a contributor to relative performance. All of MFS' investment decisions are driven by the fundamentals of each individual opportunity and as such, it is common for our funds to have different currency exposure than the benchmark.
Respectfully,
Portfolio Manager(s)
Philip Evans and Benjamin Stone
| (b) | Security is not a benchmark constituent. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS International Intrinsic Value Portfolio
Performance Summary Through 12/31/23
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/23
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 10/02/1995 | 17.66% | 8.58% | 6.92% |
| Service Class | 8/24/2001 | 17.37% | 8.31% | 6.66% |
Comparative benchmark(s)
| MSCI EAFE Index (net div) (f) | 18.24% | 8.16% | 4.28% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
MSCI EAFE (Europe, Australasia, Far East) Index(e) (net div) – a market capitalization-weighted index that is designed to measure equity market performance in the developed markets, excluding the U.S. and Canada.
It is not possible to invest directly in an index.
| (e) | Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
MFS International Intrinsic Value Portfolio
Performance Summary – continued
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS International Intrinsic Value Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2023 through December 31, 2023
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2023 through December 31, 2023.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/23 | Ending
Account Value
12/31/23 | Expenses
Paid During
Period (p)
7/01/23-12/31/23 |
| Initial Class | Actual | 0.89% | $1,000.00 | $1,044.98 | $4.59 |
| Hypothetical (h) | 0.89% | $1,000.00 | $1,020.72 | $4.53 |
| Service Class | Actual | 1.14% | $1,000.00 | $1,043.40 | $5.87 |
| Hypothetical (h) | 1.14% | $1,000.00 | $1,019.46 | $5.80 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS International Intrinsic Value Portfolio
Portfolio of Investments − 12/31/23
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 98.0% |
| Airlines – 1.0% | |
| Ryanair Holdings PLC, ADR (a) | | 104,999 | $ 14,002,667 |
| Alcoholic Beverages – 3.4% | |
| Diageo PLC | | 586,764 | $ 21,360,561 |
| Pernod Ricard S.A. | | 143,092 | 25,235,138 |
| | | | | $46,595,699 |
| Apparel Manufacturers – 1.8% | |
| Adidas AG | | 48,783 | $ 9,917,753 |
| Compagnie Financiere Richemont S.A. | | 53,875 | 7,414,579 |
| LVMH Moet Hennessy Louis Vuitton SE | | 8,122 | 6,577,665 |
| | | | | $23,909,997 |
| Automotive – 0.7% | |
| Knorr-Bremse AG | | 137,838 | $ 8,947,377 |
| Brokerage & Asset Managers – 3.2% | |
| Deutsche Boerse AG | | 142,168 | $ 29,270,501 |
| Euronext N.V. | | 166,369 | 14,445,101 |
| | | | | $43,715,602 |
| Business Services – 3.9% | |
| Experian PLC | | 435,711 | $ 17,783,238 |
| Intertek Group PLC | | 229,047 | 12,396,400 |
| Nomura Research Institute Ltd. | | 373,200 | 10,854,562 |
| SGS S.A. | | 135,320 | 11,671,260 |
| | | | | $52,705,460 |
| Chemicals – 0.9% | |
| Givaudan S.A. | | 2,813 | $ 11,652,687 |
| Computer Software – 6.2% | |
| ANSYS, Inc. (a) | | 27,527 | $ 9,988,997 |
| Cadence Design Systems, Inc. (a) | | 137,827 | 37,539,940 |
| Dassault Systemes SE | | 203,442 | 9,934,731 |
| NICE Systems Ltd., ADR (a)(l) | | 22,096 | 4,408,373 |
| SAP SE | | 142,409 | 21,927,991 |
| | | | | $83,800,032 |
| Computer Software - Systems – 5.3% | |
| Amadeus IT Group S.A. | | 257,046 | $ 18,410,736 |
| Cap Gemini S.A. | | 78,897 | 16,439,815 |
| Samsung Electronics Co. Ltd. | | 598,471 | 36,398,955 |
| | | | | $71,249,506 |
| Construction – 1.9% | |
| Compagnie de Saint-Gobain S.A. | | 56,217 | $ 4,136,971 |
| CRH PLC | | 314,188 | 21,729,242 |
| | | | | $25,866,213 |
MFS International Intrinsic Value Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Consumer Products – 5.5% | |
| Beiersdorf AG | | 86,974 | $ 13,029,230 |
| Haleon PLC | | 5,430,481 | 22,264,495 |
| KOSE Corp. (l) | | 37,200 | 2,790,000 |
| L’Oréal S.A. | | 20,454 | 10,175,765 |
| Lion Corp. (l) | | 413,200 | 3,834,555 |
| ROHTO Pharmaceutical Co. Ltd. | | 736,100 | 14,842,073 |
| Svenska Cellulosa Aktiebolaget | | 521,842 | 7,817,761 |
| | | | | $74,753,879 |
| Electrical Equipment – 7.9% | |
| Legrand S.A. | | 332,578 | $ 34,548,771 |
| Mitsubishi Electric Corp. | | 1,340,900 | 19,010,348 |
| Schneider Electric SE | | 238,886 | 47,938,701 |
| Yokogawa Electric Corp. | | 318,700 | 6,077,903 |
| | | | | $107,575,723 |
| Electronics – 5.9% | |
| Analog Devices, Inc. | | 103,136 | $ 20,478,684 |
| ASML Holding N.V. | | 13,182 | 9,920,283 |
| DISCO Corp. | | 43,200 | 10,717,277 |
| Hirose Electric Co. Ltd. | | 123,100 | 13,938,237 |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | 245,329 | 25,514,216 |
| | | | | $80,568,697 |
| Energy - Independent – 1.7% | |
| Woodside Energy Group Ltd. | | 1,117,019 | $ 23,642,644 |
| Energy - Integrated – 5.3% | |
| Aker BP ASA | | 468,238 | $ 13,618,671 |
| Galp Energia SGPS S.A., “B” | | 519,214 | 7,646,306 |
| Petroleo Brasileiro S.A., ADR | | 600,636 | 9,177,718 |
| TotalEnergies SE | | 601,094 | 40,876,393 |
| | | | | $71,319,088 |
| Engineering - Construction – 0.4% | |
| Taisei Corp. | | 167,900 | $ 5,741,942 |
| Food & Beverages – 3.0% | |
| Chocoladefabriken Lindt & Sprungli AG | | 479 | $ 5,746,519 |
| Ezaki Glico Co. Ltd. (l) | | 189,800 | 5,619,965 |
| Nestle S.A. | | 38,760 | 4,493,773 |
| Novozymes A/S | | 145,897 | 8,017,886 |
| Toyo Suisan Kaisha Ltd. | | 319,600 | 16,501,333 |
| | | | | $40,379,476 |
| Food & Drug Stores – 0.4% | |
| Ocado Group PLC (a) | | 536,664 | $ 5,187,902 |
| Insurance – 1.3% | |
| Hiscox Ltd. | | 494,498 | $ 6,643,488 |
| Willis Towers Watson PLC | | 45,277 | 10,920,812 |
| | | | | $17,564,300 |
| Internet – 0.3% | |
| M3, Inc. | | 212,700 | $ 3,519,355 |
MFS International Intrinsic Value Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Machinery & Tools – 6.2% | |
| Epiroc AB | | 564,550 | $ 11,317,811 |
| GEA Group AG | | 275,388 | 11,458,311 |
| IMI PLC | | 953,284 | 20,462,345 |
| Schindler Holding AG | | 46,361 | 11,592,317 |
| SMC Corp. | | 36,000 | 19,342,979 |
| Spirax-Sarco Engineering PLC | | 77,804 | 10,418,111 |
| | | | | $84,591,874 |
| Major Banks – 6.6% | |
| Bank of Ireland Group PLC | | 1,907,781 | $ 17,307,890 |
| NatWest Group PLC | | 7,998,551 | 22,368,607 |
| Resona Holdings, Inc. | | 4,432,200 | 22,522,491 |
| UBS Group AG | | 866,574 | 26,892,077 |
| | | | | $89,091,065 |
| Medical Equipment – 5.7% | |
| Agilent Technologies, Inc. | | 135,896 | $ 18,893,621 |
| Bruker BioSciences Corp. | | 180,200 | 13,241,096 |
| EssilorLuxottica | | 89,115 | 17,865,539 |
| Olympus Corp. | | 504,200 | 7,296,596 |
| Shimadzu Corp. | | 691,900 | 19,343,758 |
| | | | | $76,640,610 |
| Metals & Mining – 1.3% | |
| Glencore PLC | | 2,979,055 | $ 17,926,831 |
| Other Banks & Diversified Financials – 6.3% | |
| AIB Group PLC | | 5,816,324 | $ 24,913,215 |
| CaixaBank S.A. | | 5,159,252 | 21,221,646 |
| Chiba Bank Ltd. | | 1,393,400 | 10,065,092 |
| Hachijuni Bank Ltd. | | 455,700 | 2,539,316 |
| Julius Baer Group Ltd. | | 140,492 | 7,876,105 |
| Jyske Bank A.S. | | 87,900 | 6,300,235 |
| Mebuki Financial Group, Inc. | | 1,802,200 | 5,482,011 |
| North Pacific Bank Ltd. | | 683,200 | 1,720,113 |
| Sydbank A.S. | | 113,229 | 4,923,073 |
| | | | | $85,040,806 |
| Pharmaceuticals – 2.2% | |
| Bayer AG | | 212,241 | $ 7,879,626 |
| Roche Holding AG | | 75,504 | 21,949,620 |
| | | | | $29,829,246 |
| Precious Metals & Minerals – 4.4% | |
| Agnico Eagle Mines Ltd. | | 178,446 | $ 9,783,859 |
| Franco-Nevada Corp. | | 322,820 | 35,757,361 |
| Wheaton Precious Metals Corp. | | 271,023 | 13,370,645 |
| | | | | $58,911,865 |
| Printing & Publishing – 1.4% | |
| Wolters Kluwer N.V. | | 136,833 | $ 19,441,012 |
MFS International Intrinsic Value Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Real Estate – 1.2% | |
| LEG Immobilien SE (a) | | 51,013 | $ 4,466,970 |
| TAG Immobilien AG (a) | | 148,425 | 2,162,051 |
| Vonovia SE, REIT | | 319,381 | 10,062,653 |
| | | | | $16,691,674 |
| Specialty Chemicals – 2.4% | |
| Croda International PLC | | 86,959 | $ 5,597,536 |
| Nitto Denko Corp. | | 70,500 | 5,275,000 |
| Sika AG | | 36,272 | 11,803,872 |
| Symrise AG | | 87,436 | 9,617,750 |
| | | | | $32,294,158 |
| Specialty Stores – 0.3% | |
| Zalando SE (a) | | 180,346 | $ 4,270,545 |
| Total Common Stocks (Identified Cost, $1,022,353,722) | | $1,327,427,932 |
| Investment Companies (h) – 1.8% |
| Money Market Funds – 1.8% | |
| MFS Institutional Money Market Portfolio, 5.42% (v) (Identified Cost, $24,427,709) | | | 24,427,190 | $ 24,432,075 |
| Other Assets, Less Liabilities – 0.2% | | 2,926,821 |
| Net Assets – 100.0% | $1,354,786,828 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $24,432,075 and $1,327,427,932, respectively. | | | |
| (l) | A portion of this security is on loan. See Note 2 for additional information. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| REIT | Real Estate Investment Trust |
See Notes to Financial Statements
MFS International Intrinsic Value Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/23Assets | |
| Investments in unaffiliated issuers, at value, including $10,784,403 of securities on loan (identified cost, $1,022,353,722) | $1,327,427,932 |
| Investments in affiliated issuers, at value (identified cost, $24,427,709) | 24,432,075 |
| Receivables for | |
| Investments sold | 86,251 |
| Fund shares sold | 1,561,174 |
| Interest and dividends | 3,465,115 |
| Other assets | 6,272 |
| Total assets | $1,356,978,819 |
| Liabilities | |
| Payables for | |
| Investments purchased | $362,483 |
| Fund shares reacquired | 1,485,696 |
| Payable to affiliates | |
| Investment adviser | 171,569 |
| Administrative services fee | 1,917 |
| Shareholder servicing costs | 34 |
| Distribution and/or service fees | 29,553 |
| Accrued expenses and other liabilities | 140,739 |
| Total liabilities | $2,191,991 |
| Net assets | $1,354,786,828 |
| Net assets consist of | |
| Paid-in capital | $981,852,743 |
| Total distributable earnings (loss) | 372,934,085 |
| Net assets | $1,354,786,828 |
| Shares of beneficial interest outstanding | 46,800,732 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $277,965,462 | 9,453,979 | $29.40 |
| Service Class | 1,076,821,366 | 37,346,753 | 28.83 |
See Notes to Financial Statements
MFS International Intrinsic Value Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/23 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $32,929,441 |
| Dividends from affiliated issuers | 855,173 |
| Interest | 39,681 |
| Income on securities loaned | 11,765 |
| Other | 620 |
| Foreign taxes withheld | (3,111,614) |
| Total investment income | $30,725,066 |
| Expenses | |
| Management fee | $11,440,992 |
| Distribution and/or service fees | 2,598,882 |
| Shareholder servicing costs | 8,968 |
| Administrative services fee | 198,440 |
| Independent Trustees' compensation | 22,579 |
| Custodian fee | 162,795 |
| Audit and tax fees | 64,330 |
| Legal fees | 6,382 |
| Miscellaneous | 18,212 |
| Total expenses | $14,521,580 |
| Reduction of expenses by investment adviser | (212,341) |
| Net expenses | $14,309,239 |
| Net investment income (loss) | $16,415,827 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $59,350,869 |
| Affiliated issuers | (1,647) |
| Foreign currency | 87,793 |
| Net realized gain (loss) | $59,437,015 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $134,329,335 |
| Affiliated issuers | 197 |
| Translation of assets and liabilities in foreign currencies | 104,668 |
| Net unrealized gain (loss) | $134,434,200 |
| Net realized and unrealized gain (loss) | $193,871,215 |
| Change in net assets from operations | $210,287,042 |
See Notes to Financial Statements
MFS International Intrinsic Value Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/23 | 12/31/22 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $16,415,827 | $6,786,045 |
| Net realized gain (loss) | 59,437,015 | 98,590,506 |
| Net unrealized gain (loss) | 134,434,200 | (500,076,006) |
| Change in net assets from operations | $210,287,042 | $(394,699,455) |
| Total distributions to shareholders | $(104,795,926) | $(66,373,289) |
| Change in net assets from fund share transactions | $(10,874,176) | $58,193,922 |
| Total change in net assets | $94,616,940 | $(402,878,822) |
| Net assets | | |
| At beginning of period | 1,260,169,888 | 1,663,048,710 |
| At end of period | $1,354,786,828 | $1,260,169,888 |
See Notes to Financial Statements
MFS International Intrinsic Value Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $27.24 | $37.62 | $35.05 | $29.94 | $25.02 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.42 | $0.21 | $0.16 | $0.18 | $0.28 |
| Net realized and unrealized gain (loss) | 4.20 | (9.07) | 3.51 | 5.87 | 6.06 |
| Total from investment operations | $4.62 | $(8.86) | $3.67 | $6.05 | $6.34 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.22) | $(0.23) | $(0.12) | $(0.31) | $(0.54) |
| From net realized gain | (2.24) | (1.29) | (0.98) | (0.63) | (0.88) |
| Total distributions declared to shareholders | $(2.46) | $(1.52) | $(1.10) | $(0.94) | $(1.42) |
| Net asset value, end of period (x) | $29.40 | $27.24 | $37.62 | $35.05 | $29.94 |
| Total return (%) (k)(r)(s)(x) | 17.66 | (23.56) | 10.55 | 20.52 | 25.94 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.91 | 0.92 | 0.90 | 0.92 | 0.92 |
| Expenses after expense reductions | 0.90 | 0.90 | 0.89 | 0.90 | 0.90 |
| Net investment income (loss) | 1.45 | 0.71 | 0.45 | 0.59 | 0.99 |
| Portfolio turnover | 20 | 30 | 13 | 10 | 13 |
| Net assets at end of period (000 omitted) | $277,965 | $253,911 | $344,052 | $328,247 | $308,053 |
| Service Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $26.75 | $36.96 | $34.47 | $29.47 | $24.60 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.34 | $0.13 | $0.07 | $0.10 | $0.20 |
| Net realized and unrealized gain (loss) | 4.12 | (8.90) | 3.45 | 5.77 | 5.97 |
| Total from investment operations | $4.46 | $(8.77) | $3.52 | $5.87 | $6.17 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.14) | $(0.15) | $(0.05) | $(0.24) | $(0.42) |
| From net realized gain | (2.24) | (1.29) | (0.98) | (0.63) | (0.88) |
| Total distributions declared to shareholders | $(2.38) | $(1.44) | $(1.03) | $(0.87) | $(1.30) |
| Net asset value, end of period (x) | $28.83 | $26.75 | $36.96 | $34.47 | $29.47 |
| Total return (%) (k)(r)(s)(x) | 17.37 | (23.75) | 10.28 | 20.21 | 25.65 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.16 | 1.17 | 1.15 | 1.17 | 1.17 |
| Expenses after expense reductions | 1.15 | 1.15 | 1.14 | 1.15 | 1.15 |
| Net investment income (loss) | 1.21 | 0.46 | 0.19 | 0.34 | 0.72 |
| Portfolio turnover | 20 | 30 | 13 | 10 | 13 |
| Net assets at end of period (000 omitted) | $1,076,821 | $1,006,259 | $1,318,997 | $1,177,140 | $1,048,117 |
See Notes to Financial Statements
MFS International Intrinsic Value Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS International Intrinsic Value Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS International Intrinsic Value Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party
MFS International Intrinsic Value Portfolio
Notes to Financial Statements - continued
pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2023 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| France | $228,174,590 | $— | $— | $228,174,590 |
| Japan | 207,034,906 | — | — | 207,034,906 |
| United Kingdom | 184,138,756 | — | — | 184,138,756 |
| Germany | 133,010,758 | — | — | 133,010,758 |
| Switzerland | 121,092,809 | — | — | 121,092,809 |
| United States | 111,063,150 | — | — | 111,063,150 |
| Canada | 58,911,865 | — | — | 58,911,865 |
| Ireland | 56,223,772 | — | — | 56,223,772 |
| Spain | 39,632,382 | — | — | 39,632,382 |
| Other Countries | 151,745,989 | 36,398,955 | — | 188,144,944 |
| Mutual Funds | 24,432,075 | — | — | 24,432,075 |
| Total | $1,315,461,052 | $36,398,955 | $— | $1,351,860,007 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund’s Portfolio of Investments, with a fair value of $10,784,403. The fair value of the fund’s investment securities on loan is presented gross in the Statement of Assets and Liabilities. These loans were collateralized by U.S. Treasury Obligations of $11,429,048 held by the custodian. The collateral on securities loaned exceeded the value of securities on loan at period end. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the
MFS International Intrinsic Value Portfolio
Notes to Financial Statements - continued
remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Investment transactions are recorded on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/23 | Year ended
12/31/22 |
| Ordinary income (including any short-term capital gains) | $6,792,426 | $12,442,083 |
| Long-term capital gains | 98,003,500 | 53,931,206 |
| Total distributions | $104,795,926 | $66,373,289 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/23 | |
| Cost of investments | $1,057,039,514 |
| Gross appreciation | 351,085,149 |
| Gross depreciation | (56,264,656) |
| Net unrealized appreciation (depreciation) | $294,820,493 |
| Undistributed ordinary income | 17,866,249 |
| Undistributed long-term capital gain | 60,259,886 |
| Other temporary differences | (12,543) |
| Total distributable earnings (loss) | $372,934,085 |
MFS International Intrinsic Value Portfolio
Notes to Financial Statements - continued
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/23 | | Year
ended
12/31/22 |
| Initial Class | $21,771,899 | | $14,068,472 |
| Service Class | 83,024,027 | | 52,304,817 |
| Total | $104,795,926 | | $66,373,289 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.90% |
| In excess of $1 billion and up to $2 billion | 0.80% |
| In excess of $2 billion | 0.70% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this management fee reduction amounted to $166,840, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.86% of the fund's average daily net assets.
For the period from January 1, 2023 through July 31, 2023, the investment adviser had agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses did not exceed 0.90% of average daily net assets for the Initial Class shares and 1.15% of average daily net assets for the Service Class shares. This written agreement terminated on July 31, 2023. For the period from January 1, 2023 through July 31, 2023, this reduction amounted to $33,703, which is included in the reduction of total expenses in the Statement of Operations. Effective August 1, 2023, the investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.89% of average daily net assets for the Initial Class shares and 1.14% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2025. For the period from August 1, 2023 through December 31, 2023, this reduction amounted to $11,798, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares as well as shareholder servicing and account maintenance activities. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. The distribution and/or service fees are computed daily and paid monthly.
MFS International Intrinsic Value Portfolio
Notes to Financial Statements - continued
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2023, the fee was $7,004, which equated to 0.0005% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2023, these costs amounted to $1,964.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is computed daily and paid monthly. The administrative services fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.0152% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
During the year ended December 31, 2023, pursuant to a policy adopted by the Board of Trustees and designed to comply with Rule 17a-7 under the Investment Company Act of 1940 (the “Act”) and relevant guidance, the fund engaged in sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) which amounted to $2,387,431. The sales transactions resulted in net realized gains (losses) of $28,433.
(4) Portfolio Securities
For the year ended December 31, 2023, purchases and sales of investments, other than short-term obligations, aggregated $251,058,926 and $364,286,630, respectively.
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 1,281,995 | $37,476,940 | | 1,771,546 | $52,672,777 |
| Service Class | 3,262,017 | 92,619,281 | | 17,043,700 | 503,582,214 |
| | 4,544,012 | $130,096,221 | | 18,815,246 | $556,254,991 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 782,133 | $21,360,062 | | 502,678 | $13,763,324 |
| Service Class | 3,097,911 | 83,024,027 | | 1,943,694 | 52,304,817 |
| | 3,880,044 | $104,384,089 | | 2,446,372 | $66,068,141 |
| Shares reacquired | | | | | |
| Initial Class | (1,932,937) | $(56,194,165) | | (2,097,229) | $(61,157,518) |
| Service Class | (6,633,208) | (189,160,321) | | (17,056,927) | (502,971,692) |
| | (8,566,145) | $(245,354,486) | | (19,154,156) | $(564,129,210) |
| Net change | | | | | |
| Initial Class | 131,191 | $2,642,837 | | 176,995 | $5,278,583 |
| Service Class | (273,280) | (13,517,013) | | 1,930,467 | 52,915,339 |
| | (142,089) | $(10,874,176) | | 2,107,462 | $58,193,922 |
MFS International Intrinsic Value Portfolio
Notes to Financial Statements - continued
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio and the MFS Growth Allocation Portfolio were the owners of record of approximately 2% and 1%, respectively, of the value of outstanding voting shares of the fund. In addition, the MFS Conservative Allocation Portfolio was the owner of record of less than 1% of the value of outstanding voting shares of the fund.
Effective at the close of business on October 16, 2017, the fund was closed to new investors subject to certain exceptions.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 14, 2024 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2023, the fund’s commitment fee and interest expense were $6,576 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $10,496,042 | $228,308,619 | $214,371,136 | $(1,647) | $197 | $24,432,075 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $855,173 | $— |
MFS International Intrinsic Value Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS International Intrinsic Value Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS International Intrinsic Value Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 2024
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS International Intrinsic Value Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2024, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 57) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 69) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 72) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 69) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 68) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 68) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 62) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 67) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 67) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 66) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 55) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
MFS International Intrinsic Value Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
John W. Clark, Jr. (k)
(age 56) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 55) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 56) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 47) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022) |
Amanda S. Mooradian (k)
(age 44) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 53) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 53) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
James O. Yost (k)
(age 63) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Caroselli, Jones and Otis are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
MFS International Intrinsic Value Portfolio
Trustees and Officers - continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Congress Street, Suite 1
Boston, MA 02114-2016 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Philip Evans
Benjamin Stone | |
MFS International Intrinsic Value Portfolio
Board Review of Investment Advisory Agreement
MFS International Intrinsic Value Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2023 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2022 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2022, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 2nd quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 3rd quintile for the one-year period and the 2nd quintile for the three-year period ended December 31, 2022 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS International Intrinsic Value Portfolio
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each higher than the Broadridge expense group median. The Trustees also noted that MFS has agreed to further reduce the expense limitation for the Fund effective August 1, 2023, which may not be changed without the Trustees’ approval.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2023.
MFS International Intrinsic Value Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $107,804,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 9.32% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
Income derived from foreign sources was $32,243,884. The fund intends to pass through foreign tax credits of $2,990,881 for the fiscal year.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2023
MFS® Massachusetts Investors
Growth Stock Portfolio
MFS® Variable Insurance Trust II
MFS® Massachusetts Investors Growth Stock Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Massachusetts Investors Growth Stock Portfolio
Portfolio structure
Top ten holdings
| Microsoft Corp. | 13.5% |
| Apple, Inc. | 5.7% |
| Alphabet, Inc., “A” | 5.2% |
| Visa, Inc., “A” | 4.5% |
| Accenture PLC, “A” | 4.1% |
| Amphenol Corp., “A” | 2.7% |
| Agilent Technologies, Inc. | 2.4% |
| Church & Dwight Co., Inc. | 2.3% |
| Analog Devices, Inc. | 2.2% |
| ICON PLC | 2.1% |
GICS equity sectors (g)
| Information Technology | 36.2% |
| Financials | 13.9% |
| Health Care | 13.0% |
| Consumer Discretionary | 8.7% |
| Communication Services | 8.3% |
| Industrials | 8.0% |
| Consumer Staples | 6.7% |
| Real Estate | 1.9% |
| Utilities | 1.4% |
| Materials | 1.4% |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2023.
The portfolio is actively managed and current holdings may be different.
MFS Massachusetts Investors Growth Stock Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2023, Initial Class shares of the MFS Massachusetts Investors Growth Stock Portfolio (fund) provided a total return of 24.01%, while Service Class shares of the fund provided a total return of 23.70%. These compare with a return of 42.68% over the same period for the fund’s benchmark, the Russell 1000® Growth Index.
Market Environment
During the reporting period, central banks around the world had to combat the strongest inflationary pressures in four decades, fueled by the global fiscal response to the pandemic, disrupted supply chains and the dislocations to energy markets stemming from the war in Ukraine. Interest rates rose substantially, but the effects of a tighter monetary policy may not have been fully experienced yet, given that monetary policy works with long and variable lags. Strains resulting from the abrupt tightening of monetary policy began to affect some parts of the economy, most acutely among small and regional US banks, which suffered from deposit flight as depositors sought higher yields on their savings. Additionally, activity in the US housing sector has slowed as a result of higher mortgage rates. China’s abandonment of its Zero-COVID policy ushered in a brief uptick in economic activity in the world’s second-largest economy in early 2023, although its momentum soon stalled as the focus turned to the country’s highly indebted property development sector. In developed markets, consumer demand for services remained stronger than the demand for goods.
Early on, policymakers found themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, central banks focused on controlling price pressures while also confronting increasing financial stability concerns. Central banks had to juggle achieving their inflation mandates while using macroprudential tools (financial policies aimed at safeguarding the stability of the financial system) to keep banking systems liquid, a potentially difficult balancing act, and one that suggested that we may be nearing a peak in policy rates. As inflationary pressures eased toward the end of the period, financial conditions loosened in anticipation of easier monetary policy, boosting the market’s appetite for risk. Rapid advancements in artificial intelligence were a focus for investors.
Normalizing supply chains, low levels of unemployment across developed markets and signs that inflation levels have peaked were supportive factors for the macroeconomic backdrop.
Detractors from Performance
Relative to the Russell 1000® Growth Index, stock selection and underweight positions in both the information technology and consumer discretionary sectors weighed on the fund’s performance. Within the information technology sector, the timing of the fund’s ownership in shares of computer graphics processor maker NVIDIA and not holding shares of broadband communications and networking services company Broadcom weakened relative results. The stock price of Broadcom appreciated in reaction to better-than-expected earnings results, supported by strength in AI-related server demand and an increased earnings outlook. Within the consumer discretionary sector, not holding shares of internet retailer Amazon.com and electric vehicle manufacturer Tesla, and the fund’s overweight position in vehicle components manufacturer Aptiv, held back relative results.
The combination of an overweight position and stock selection in the financials sector also dampened relative results, led by the timing of the fund’s ownership in shares of risk management and human capital consulting services provider Aon.
Stock selection in the communication services sector further detracted from the fund’s relative performance. Within this sector, not holding shares of social networking service provider Meta Platforms held back relative returns.
Elsewhere, an overweight position in beauty products maker Estée Lauder Companies, and the fund’s holdings of food company McCormick & Co.(b) and utilities company Xcel Energy(b), hindered relative performance. The stock price of Estée Lauder Companies declined as the firm lowered its sales outlook due to a slower-than-expected demand recovery from Chinese consumers. Excess inventory in the company’s Asia travel retail segment pressured the bottom line during the year, undercutting gains in its North American markets.
Contributors to Performance
The fund’s avoidance of the weak-performing energy sector contributed to relative performance. There were no individual stocks within this sector, either in the fund or in the benchmark, that were among the fund's top relative contributors over the reporting period.
The fund’s overweight position and stock selection in the industrials sector also benefited relative results. Within this sector, not holding shares of agricultural equipment manufacturer Deere and defense contractor Lockheed Martin, combined with the fund’s holdings of diversified industrial manufacturer Eaton(b) (Ireland), lifted relative returns. The stock price of Eaton advanced as the company reported earnings per share results that topped estimates and raised its organic sales guidance, driven by a favorable outlook in its Electrical Americas division.
MFS Massachusetts Investors Growth Stock Portfolio
Management Review - continued
Elsewhere, not owning shares of health insurance and Medicare/Medicaid provider UnitedHealth Group, pharmaceutical company AbbVie, beverage maker Coca-Cola, consumer goods company Procter & Gamble Company, home improvements retailer Home Depot, and merchandise store operator Dollar General helped relative performance. The share price of UnitedHealth Group declined as the company reported higher-than-anticipated investment costs in its Optum Insights segment. Additionally, an overweight position in software company Adobe Systems further supported the fund’s relative returns.
Respectfully,
Portfolio Manager(s)
Jeffrey Constantino and Joseph Skorski
| (b) | Security is not a benchmark constituent. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Massachusetts Investors Growth Stock Portfolio
Performance Summary Through 12/31/23
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/23
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 5/06/1998 | 24.01% | 16.68% | 12.71% |
| Service Class | 8/24/2001 | 23.70% | 16.39% | 12.44% |
Comparative benchmark(s)
| Russell 1000® Growth Index (f) | 42.68% | 19.50% | 14.86% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Russell 1000® Growth Index(h) – constructed to provide a comprehensive barometer for growth securities in the large-cap segment of the U.S. equity universe. Companies in this index generally have higher price-to-book ratios and higher forecasted growth values.
It is not possible to invest directly in an index.
| (h) | Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this document. No further distribution of Russell Data is permitted without Russell's express written consent. Russell does not promote, sponsor, or endorse the content of this document. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
MFS Massachusetts Investors Growth Stock Portfolio
Performance Summary – continued
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Massachusetts Investors Growth Stock Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2023 through December 31, 2023
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2023 through December 31, 2023.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/23 | Ending
Account Value
12/31/23 | Expenses
Paid During
Period (p)
7/01/23-12/31/23 |
| Initial Class | Actual | 0.73% | $1,000.00 | $1,062.68 | $3.80 |
| Hypothetical (h) | 0.73% | $1,000.00 | $1,021.53 | $3.72 |
| Service Class | Actual | 0.98% | $1,000.00 | $1,061.45 | $5.09 |
| Hypothetical (h) | 0.98% | $1,000.00 | $1,020.27 | $4.99 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS Massachusetts Investors Growth Stock Portfolio
Portfolio of Investments − 12/31/23
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 99.5% |
| Apparel Manufacturers – 2.9% | |
| LVMH Moet Hennessy Louis Vuitton SE | | 14,969 | $ 12,122,762 |
| NIKE, Inc., “B” | | 147,969 | 16,064,994 |
| | | | | $28,187,756 |
| Automotive – 1.3% | |
| Aptiv PLC (a) | | 144,019 | $ 12,921,385 |
| Broadcasting – 1.1% | |
| Walt Disney Co. | | 124,273 | $ 11,220,609 |
| Brokerage & Asset Managers – 2.0% | |
| Brookfield Asset Management Ltd. | | 216,785 | $ 8,707,066 |
| Charles Schwab Corp. | | 157,582 | 10,841,642 |
| | | | | $19,548,708 |
| Business Services – 6.7% | |
| Accenture PLC, “A” | | 115,668 | $ 40,589,058 |
| Equifax, Inc. | | 31,167 | 7,707,287 |
| Fiserv, Inc. (a) | | 105,459 | 14,009,174 |
| Verisk Analytics, Inc., “A” | | 15,482 | 3,698,030 |
| | | | | $66,003,549 |
| Computer Software – 14.7% | |
| Adobe Systems, Inc. (a) | | 19,217 | $ 11,464,862 |
| Microsoft Corp. | | 350,973 | 131,979,887 |
| | | | | $143,444,749 |
| Computer Software - Systems – 5.7% | |
| Apple, Inc. | | 290,207 | $ 55,873,554 |
| Construction – 2.6% | |
| Otis Worldwide Corp. | | 131,243 | $ 11,742,311 |
| Sherwin-Williams Co. | | 43,800 | 13,661,220 |
| | | | | $25,403,531 |
| Consumer Products – 3.9% | |
| Church & Dwight Co., Inc. | | 237,704 | $ 22,477,290 |
| Estée Lauder Cos., Inc., “A” | | 106,173 | 15,527,802 |
| | | | | $38,005,092 |
| Electrical Equipment – 6.3% | |
| Amphenol Corp., “A” | | 264,729 | $ 26,242,586 |
| Hubbell, Inc. | | 41,878 | 13,774,931 |
| Schneider Electric SE | | 40,063 | 8,039,685 |
| TE Connectivity Ltd. | | 95,265 | 13,384,732 |
| | | | | $61,441,934 |
| Electronics – 6.1% | |
| Analog Devices, Inc. | | 108,175 | $ 21,479,228 |
| NVIDIA Corp. | | 35,027 | 17,346,071 |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | 139,938 | 14,553,552 |
MFS Massachusetts Investors Growth Stock Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Electronics – continued | |
| Texas Instruments, Inc. | | 39,016 | $ 6,650,667 |
| | | | | $60,029,518 |
| Food & Beverages – 2.8% | |
| McCormick & Co., Inc. | | 246,658 | $ 16,876,341 |
| PepsiCo, Inc. | | 62,212 | 10,566,086 |
| | | | | $27,442,427 |
| Insurance – 3.2% | |
| Aon PLC | | 67,262 | $ 19,574,587 |
| Marsh & McLennan Cos., Inc. | | 60,791 | 11,518,071 |
| | | | | $31,092,658 |
| Internet – 7.9% | |
| Alphabet, Inc., “A” (a) | | 361,042 | $ 50,433,957 |
| Gartner, Inc. (a) | | 32,692 | 14,747,688 |
| Tencent Holdings Ltd. | | 315,200 | 11,851,536 |
| | | | | $77,033,181 |
| Leisure & Toys – 0.8% | |
| Electronic Arts, Inc. | | 54,593 | $ 7,468,868 |
| Machinery & Tools – 2.2% | |
| Eaton Corp. PLC | | 65,982 | $ 15,889,785 |
| Veralto Corp. | | 63,243 | 5,202,369 |
| | | | | $21,092,154 |
| Medical & Health Technology & Services – 2.1% | |
| ICON PLC (a) | | 72,114 | $ 20,413,310 |
| Medical Equipment – 10.9% | |
| Abbott Laboratories | | 74,340 | $ 8,182,604 |
| Agilent Technologies, Inc. | | 166,329 | 23,124,721 |
| Becton, Dickinson and Co. | | 50,546 | 12,324,631 |
| Boston Scientific Corp. (a) | | 310,794 | 17,967,001 |
| Danaher Corp. | | 41,246 | 9,541,850 |
| STERIS PLC | | 91,414 | 20,097,368 |
| Stryker Corp. | | 13,018 | 3,898,370 |
| Thermo Fisher Scientific, Inc. | | 21,650 | 11,491,603 |
| | | | | $106,628,148 |
| Other Banks & Diversified Financials – 7.3% | |
| Mastercard, Inc., “A” | | 28,656 | $ 12,222,071 |
| Moody's Corp. | | 37,460 | 14,630,378 |
| Visa, Inc., “A” | | 170,030 | 44,267,310 |
| | | | | $71,119,759 |
| Railroad & Shipping – 1.2% | |
| Canadian Pacific Kansas City Ltd. | | 151,234 | $ 11,956,560 |
| Restaurants – 1.2% | |
| Starbucks Corp. | | 127,834 | $ 12,273,342 |
MFS Massachusetts Investors Growth Stock Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Specialty Stores – 3.3% | |
| Ross Stores, Inc. | | 138,397 | $ 19,152,761 |
| TJX Cos., Inc. | | 135,381 | 12,700,092 |
| | | | | $31,852,853 |
| Telecommunications - Wireless – 1.9% | |
| American Tower Corp., REIT | | 88,108 | $ 19,020,755 |
| Utilities - Electric Power – 1.4% | |
| Xcel Energy, Inc. | | 223,679 | $ 13,847,967 |
| Total Common Stocks (Identified Cost, $473,498,677) | | $973,322,367 |
| Investment Companies (h) – 0.5% |
| Money Market Funds – 0.5% | |
| MFS Institutional Money Market Portfolio, 5.42% (v) (Identified Cost, $5,167,903) | | | 5,167,587 | $ 5,168,620 |
| Other Assets, Less Liabilities – (0.0)% | | (326,506) |
| Net Assets – 100.0% | $978,164,481 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $5,168,620 and $973,322,367, respectively. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| REIT | Real Estate Investment Trust |
See Notes to Financial Statements
MFS Massachusetts Investors Growth Stock Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/23Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $473,498,677) | $973,322,367 |
| Investments in affiliated issuers, at value (identified cost, $5,167,903) | 5,168,620 |
| Cash | 59,446 |
| Receivables for | |
| Fund shares sold | 35,879 |
| Dividends | 866,577 |
| Other assets | 4,920 |
| Total assets | $979,457,809 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $1,105,200 |
| Payable to affiliates | |
| Investment adviser | 83,268 |
| Administrative services fee | 1,419 |
| Shareholder servicing costs | 29 |
| Distribution and/or service fees | 11,211 |
| Accrued expenses and other liabilities | 92,201 |
| Total liabilities | $1,293,328 |
| Net assets | $978,164,481 |
| Net assets consist of | |
| Paid-in capital | $389,501,692 |
| Total distributable earnings (loss) | 588,662,789 |
| Net assets | $978,164,481 |
| Shares of beneficial interest outstanding | 43,658,638 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $569,546,831 | 25,168,512 | $22.63 |
| Service Class | 408,617,650 | 18,490,126 | 22.10 |
See Notes to Financial Statements
MFS Massachusetts Investors Growth Stock Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/23 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $10,201,451 |
| Dividends from affiliated issuers | 262,331 |
| Other | 269 |
| Foreign taxes withheld | (144,887) |
| Total investment income | $10,319,164 |
| Expenses | |
| Management fee | $6,974,473 |
| Distribution and/or service fees | 964,447 |
| Shareholder servicing costs | 7,231 |
| Administrative services fee | 144,308 |
| Independent Trustees' compensation | 16,863 |
| Custodian fee | 35,461 |
| Audit and tax fees | 61,928 |
| Legal fees | 4,519 |
| Miscellaneous | 9,089 |
| Total expenses | $8,218,319 |
| Reduction of expenses by investment adviser | (455,131) |
| Net expenses | $7,763,188 |
| Net investment income (loss) | $2,555,976 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $87,722,883 |
| Affiliated issuers | (968) |
| Foreign currency | 4,928 |
| Net realized gain (loss) | $87,726,843 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $108,638,318 |
| Affiliated issuers | 366 |
| Translation of assets and liabilities in foreign currencies | 1,579 |
| Net unrealized gain (loss) | $108,640,263 |
| Net realized and unrealized gain (loss) | $196,367,106 |
| Change in net assets from operations | $198,923,082 |
See Notes to Financial Statements
MFS Massachusetts Investors Growth Stock Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/23 | 12/31/22 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $2,555,976 | $1,808,305 |
| Net realized gain (loss) | 87,726,843 | 47,829,305 |
| Net unrealized gain (loss) | 108,640,263 | (274,946,289) |
| Change in net assets from operations | $198,923,082 | $(225,308,679) |
| Total distributions to shareholders | $(49,801,174) | $(131,637,497) |
| Change in net assets from fund share transactions | $(50,125,930) | $46,113,579 |
| Total change in net assets | $98,995,978 | $(310,832,597) |
| Net assets | | |
| At beginning of period | 879,168,503 | 1,190,001,100 |
| At end of period | $978,164,481 | $879,168,503 |
See Notes to Financial Statements
MFS Massachusetts Investors Growth Stock Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $19.29 | $27.57 | $25.06 | $22.58 | $17.60 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.08 | $0.06 | $0.04 | $0.06 | $0.11 |
| Net realized and unrealized gain (loss) | 4.44 | (5.14) | 6.24 | 4.80 | 6.71 |
| Total from investment operations | $4.52 | $(5.08) | $6.28 | $4.86 | $6.82 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.06) | $(0.02) | $(0.07) | $(0.11) | $(0.13) |
| From net realized gain | (1.12) | (3.18) | (3.70) | (2.27) | (1.71) |
| Total distributions declared to shareholders | $(1.18) | $(3.20) | $(3.77) | $(2.38) | $(1.84) |
| Net asset value, end of period (x) | $22.63 | $19.29 | $27.57 | $25.06 | $22.58 |
| Total return (%) (k)(r)(s)(x) | 24.01 | (19.26) | 25.97 | 22.53 | 39.95 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.78 | 0.79 | 0.78 | 0.79 | 0.79 |
| Expenses after expense reductions | 0.73 | 0.76 | 0.76 | 0.78 | 0.78 |
| Net investment income (loss) | 0.38 | 0.29 | 0.15 | 0.27 | 0.51 |
| Portfolio turnover | 20 | 17 | 15 | 33 | 22 |
| Net assets at end of period (000 omitted) | $569,547 | $517,839 | $714,524 | $641,267 | $603,369 |
| Service Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $18.86 | $27.07 | $24.67 | $22.27 | $17.38 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.03 | $0.01 | $(0.03) | $0.00(w) | $0.05 |
| Net realized and unrealized gain (loss) | 4.34 | (5.04) | 6.14 | 4.72 | 6.62 |
| Total from investment operations | $4.37 | $(5.03) | $6.11 | $4.72 | $6.67 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.01) | $— | $(0.01) | $(0.05) | $(0.07) |
| From net realized gain | (1.12) | (3.18) | (3.70) | (2.27) | (1.71) |
| Total distributions declared to shareholders | $(1.13) | $(3.18) | $(3.71) | $(2.32) | $(1.78) |
| Net asset value, end of period (x) | $22.10 | $18.86 | $27.07 | $24.67 | $22.27 |
| Total return (%) (k)(r)(s)(x) | 23.70 | (19.45) | 25.66 | 22.20 | 39.58 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.03 | 1.04 | 1.03 | 1.04 | 1.04 |
| Expenses after expense reductions | 0.98 | 1.01 | 1.01 | 1.03 | 1.03 |
| Net investment income (loss) | 0.13 | 0.04 | (0.10) | 0.02 | 0.26 |
| Portfolio turnover | 20 | 17 | 15 | 33 | 22 |
| Net assets at end of period (000 omitted) | $408,618 | $361,330 | $475,478 | $428,289 | $402,228 |
See Notes to Financial Statements
MFS Massachusetts Investors Growth Stock Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (w) | Per share amount was less than $0.01. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS Massachusetts Investors Growth Stock Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Massachusetts Investors Growth Stock Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment
MFS Massachusetts Investors Growth Stock Portfolio
Notes to Financial Statements - continued
for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2023 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities | $973,322,367 | $— | $— | $973,322,367 |
| Mutual Funds | 5,168,620 | — | — | 5,168,620 |
| Total | $978,490,987 | $— | $— | $978,490,987 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Investment transactions are recorded on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
MFS Massachusetts Investors Growth Stock Portfolio
Notes to Financial Statements - continued
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/23 | Year ended
12/31/22 |
| Ordinary income (including any short-term capital gains) | $1,792,686 | $16,603,158 |
| Long-term capital gains | 48,008,488 | 115,034,339 |
| Total distributions | $49,801,174 | $131,637,497 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/23 | |
| Cost of investments | $480,638,341 |
| Gross appreciation | 511,316,701 |
| Gross depreciation | (13,464,055) |
| Net unrealized appreciation (depreciation) | $497,852,646 |
| Undistributed ordinary income | 8,392,988 |
| Undistributed long-term capital gain | 82,413,102 |
| Other temporary differences | 4,053 |
| Total distributable earnings (loss) | $588,662,789 |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/23 | | Year
ended
12/31/22 |
| Initial Class | $29,382,026 | | $77,533,633 |
| Service Class | 20,419,148 | | 54,103,864 |
| Total | $49,801,174 | | $131,637,497 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.75% |
| In excess of $1 billion | 0.65% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this management fee reduction amounted to $118,867, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.74% of the fund's average daily net assets.
MFS Massachusetts Investors Growth Stock Portfolio
Notes to Financial Statements - continued
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.73% of average daily net assets for the Initial Class shares and 0.98% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this reduction amounted to $336,264, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares as well as shareholder servicing and account maintenance activities. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. The distribution and/or service fees are computed daily and paid monthly.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2023, the fee was $5,574, which equated to 0.0006% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2023, these costs amounted to $1,657.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is computed daily and paid monthly. The administrative services fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.0155% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
(4) Portfolio Securities
For the year ended December 31, 2023, purchases and sales of investments, other than short-term obligations, aggregated $189,130,481 and $285,705,419, respectively.
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 370,022 | $7,786,251 | | 389,377 | $8,711,128 |
| Service Class | 1,052,398 | 21,640,835 | | 1,467,695 | 32,214,023 |
| | 1,422,420 | $29,427,086 | | 1,857,072 | $40,925,151 |
MFS Massachusetts Investors Growth Stock Portfolio
Notes to Financial Statements - continued
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 1,420,108 | $29,382,026 | | 3,722,210 | $77,533,633 |
| Service Class | 1,009,849 | 20,419,148 | | 2,654,753 | 54,103,864 |
| | 2,429,957 | $49,801,174 | | 6,376,963 | $131,637,497 |
| Shares reacquired | | | | | |
| Initial Class | (3,466,392) | $(72,931,351) | | (3,184,423) | $(71,137,383) |
| Service Class | (2,729,421) | (56,422,839) | | (2,526,752) | (55,311,686) |
| | (6,195,813) | $(129,354,190) | | (5,711,175) | $(126,449,069) |
| Net change | | | | | |
| Initial Class | (1,676,262) | $(35,763,074) | | 927,164 | $15,107,378 |
| Service Class | (667,174) | (14,362,856) | | 1,595,696 | 31,006,201 |
| | (2,343,436) | $(50,125,930) | | 2,522,860 | $46,113,579 |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 14, 2024 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2023, the fund’s commitment fee and interest expense were $4,566 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $6,195,245 | $126,883,500 | $127,909,523 | $(968) | $366 | $5,168,620 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $262,331 | $— |
MFS Massachusetts Investors Growth Stock Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of
MFS Massachusetts Investors Growth Stock Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Massachusetts Investors Growth Stock Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 2024
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Massachusetts Investors Growth Stock Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2024, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 57) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 69) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 72) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 69) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 68) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 68) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 62) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 67) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 67) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 66) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 55) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
MFS Massachusetts Investors Growth Stock Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
John W. Clark, Jr. (k)
(age 56) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 55) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 56) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 47) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022) |
Amanda S. Mooradian (k)
(age 44) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 53) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 53) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
James O. Yost (k)
(age 63) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Caroselli, Jones and Otis are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
MFS Massachusetts Investors Growth Stock Portfolio
Trustees and Officers - continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Congress Street, Suite 1
Boston, MA 02114-2016 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Jeffrey Constantino
Joseph Skorski | |
MFS Massachusetts Investors Growth Stock Portfolio
Board Review of Investment Advisory Agreement
MFS Massachusetts Investors Growth Stock Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2023 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2022 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2022, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 1st quintile for each of the one- and three-year periods ended December 31, 2022 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS Massachusetts Investors Growth Stock Portfolio
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each higher than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2023.
MFS Massachusetts Investors Growth Stock Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $52,810,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 100.00% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2023
MFS® Research
International Portfolio
MFS® Variable Insurance Trust II
MFS® Research International Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Research International Portfolio
Portfolio structure
Top ten holdings
| Schneider Electric SE | 3.2% |
| Linde PLC | 3.2% |
| Novo Nordisk A.S., “B” | 3.1% |
| Roche Holding AG | 2.8% |
| Nestle S.A. | 2.8% |
| LVMH Moet Hennessy Louis Vuitton SE | 2.6% |
| Hitachi Ltd. | 1.9% |
| TotalEnergies SE | 1.8% |
| London Stock Exchange Group PLC | 1.6% |
| BNP Paribas | 1.6% |
Global equity sectors (k)
| Capital Goods | 25.6% |
| Financial Services | 20.5% |
| Health Care | 12.6% |
| Technology | 12.1% |
| Consumer Cyclicals | 9.6% |
| Consumer Staples | 8.2% |
| Energy | 8.0% |
| Telecommunications/Cable Television | 2.8% |
Issuer country weightings (x)
| Japan | 20.1% |
| France | 14.1% |
| Switzerland | 11.3% |
| United Kingdom | 10.7% |
| United States | 8.7% |
| Germany | 6.9% |
| Australia | 4.2% |
| Denmark | 3.7% |
| Hong Kong | 3.6% |
| Other Countries | 16.7% |
Currency exposure weightings (y)
| Euro | 30.3% |
| Japanese Yen | 20.1% |
| Swiss Franc | 11.3% |
| British Pound Sterling | 11.0% |
| United States Dollar | 9.0% |
| Australian Dollar | 4.2% |
| Hong Kong Dollar | 3.9% |
| Danish Krone | 3.7% |
| Canadian Dollar | 1.7% |
| Other Currencies | 4.8% |
| (k) | The sectors set forth above and the associated portfolio composition are based on MFS’ own custom sector classification methodology. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents and Other. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of December 31, 2023.
The portfolio is actively managed and current holdings may be different.
MFS Research International Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2023, Initial Class shares of the MFS Research International Portfolio (fund) provided a total return of 13.01%, while Service Class shares of the fund provided a total return of 12.83%. These compare with a return of 18.24% over the same period for the fund's benchmark, the MSCI EAFE Index (net div).
Market Environment
During the reporting period, central banks around the world had to combat the strongest inflationary pressures in four decades, fueled by the global fiscal response to the pandemic, disrupted supply chains and the dislocations to energy markets stemming from the war in Ukraine. Interest rates rose substantially, but the effects of a tighter monetary policy may not have been fully experienced yet, given that monetary policy works with long and variable lags. Strains resulting from the abrupt tightening of monetary policy began to affect some parts of the economy, most acutely among small and regional US banks, which suffered from deposit flight as depositors sought higher yields on their savings. Additionally, activity in the US housing sector has slowed as a result of higher mortgage rates. China’s abandonment of its Zero-COVID policy ushered in a brief uptick in economic activity in the world’s second-largest economy in early 2023, although its momentum soon stalled as the focus turned to the country’s highly indebted property development sector. In developed markets, consumer demand for services remained stronger than the demand for goods.
Early on, policymakers found themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, central banks focused on controlling price pressures while also confronting increasing financial stability concerns. Central banks had to juggle achieving their inflation mandates while using macroprudential tools (financial policies aimed at safeguarding the stability of the financial system) to keep banking systems liquid, a potentially difficult balancing act, and one that suggested that we may be nearing a peak in policy rates. As inflationary pressures eased toward the end of the period, financial conditions loosened in anticipation of easier monetary policy, boosting the market’s appetite for risk. Rapid advancements in artificial intelligence were a focus for investors.
Normalizing supply chains, low levels of unemployment across developed markets and signs that inflation levels have peaked were supportive factors for the macroeconomic backdrop.
Detractors from Performance
Relative to the MSCI EAFE Index, stock selection within the financial services, capital goods, and consumer staples sectors detracted from performance. Within the financial services sector, the fund’s overweight positions in international banking and financial services provider NatWest Group (United Kingdom) and insurance company AIA Group (Hong Kong), and its holdings of risk management and human capital consulting services provider Aon(b), held back relative returns. The share price of NatWest Group fell as the company reported weaker-than-expected net interest margin results and a decline in deposit balances. Within the capital goods sector, the fund’s overweight position in specialty chemical products maker Croda International (United Kingdom) held back relative results. The share price of Croda International came under pressure as the company issued a profit warning, led by destocking trends and weaker sales volumes in its consumer care segment, coupled with impairment charges in its industrial specialties segment. Within the consumer staples sector, the fund’s overweight positions in premium drinks distributor Diageo (United Kingdom) and tobacco distributor British American Tobacco (United Kingdom) also hindered relative performance.
Elsewhere, the fund’s overweight positions in medical and pharmaceutical products manufacturer Kyowa Kirin (Japan), advanced molecular testing solutions provider QIAGEN (Netherlands), pharmaceutical and diagnostic company Roche Holding (Switzerland), and pharmaceutical company Merck KGaA (Germany) further weakened relative returns. The share price of Kyowa Kirin declined as operating profits missed consensus expectations due to lower-than-anticipated sales of its prescription medicine CRYSVITA in Europe and an increase in selling, general, and administrative expenses.
Contributors to Performance
Security selection in the technology sector strengthened the fund’s relative performance. Within this sector, holdings of enterprise software solutions Constellation Software(b) and integrated circuits and electronic devices developer Cadence Design Systems(b), and an overweight position in electronics company Hitachi (Japan), contributed to relative returns. The share price of Constellation Software benefited from above-consensus revenue, improved core margins, and a better-than-anticipated organic growth outlook. Additionally, the firm deployed capital to acquire several companies, which further supported its expansion prospects.
Stocks in other sectors that contributed to relative results included the fund’s overweight positions in electrical distribution equipment manufacturer Schneider Electric (France), pharmaceutical company Novo Nordisk (Denmark), securities exchange services provider London Stock Exchange Group (United Kingdom), and investment management and banking firm UBS (Switzerland). The share price of Schneider Electric advanced owing to stronger-than-expected organic sales growth in its Energy Management segment led by robust demand for data management center equipment and a bottom-line upside as costs and expenses were well managed and lower than anticipated. Additionally, the fund’s positions in industrial gas supplier Linde(b) and discount airline operator Ryanair(b)
MFS Research International Portfolio
Management Review - continued
(Ireland), and not owning shares of biopharmaceutical company AstraZeneca (United Kingdom), also strengthened relative returns. The share price of Linde advanced steadily over the reporting period due to robust operating profit growth and stronger-than-expected margins. Additionally, an announcement of a share buyback program and a lower tax rate further supported Linde’s stock performance.
Respectfully,
Portfolio Manager(s)
Camille Humphries Lee and Nicholas Paul
Note to Shareholders: Effective January 1, 2024, John Mahoney was added as a Portfolio Manager of the fund. Effective May 1, 2024, Camille Humphries Lee will no longer be a Portfolio Manager of the fund.
| (b) | Security is not a benchmark constituent. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Research International Portfolio
Performance Summary Through 12/31/23
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/23
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 5/06/1998 | 13.01% | 8.49% | 4.15% |
| Service Class | 8/24/2001 | 12.83% | 8.23% | 3.89% |
Comparative benchmark(s)
| MSCI EAFE Index (net div) (f) | 18.24% | 8.16% | 4.28% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
MSCI EAFE (Europe, Australasia, Far East) Index(e) (net div) – a market capitalization-weighted index that is designed to measure equity market performance in the developed markets, excluding the U.S. and Canada.
It is not possible to invest directly in an index.
| (e) | Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
MFS Research International Portfolio
Performance Summary – continued
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Research International Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2023 through December 31, 2023
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2023 through December 31, 2023.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/23 | Ending
Account Value
12/31/23 | Expenses
Paid During
Period (p)
7/01/23-12/31/23 |
| Initial Class | Actual | 0.90% | $1,000.00 | $1,029.26 | $4.60 |
| Hypothetical (h) | 0.90% | $1,000.00 | $1,020.67 | $4.58 |
| Service Class | Actual | 1.15% | $1,000.00 | $1,028.60 | $5.88 |
| Hypothetical (h) | 1.15% | $1,000.00 | $1,019.41 | $5.85 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
Notes to Expense Table
Changes to the fund's fee arrangements occured during the six month period. Had these fee changes been in effect throughout the entire six month period, the annualized expense ratios, the actual expenses paid during the period, and the hypothetical expenses paid during the period would have been approximately 0.89%, $4.55, and $4.53 for Initial Class and 1.14%, $5.83, and $5.80 for Service Class, respectively. For further information about the fund’s fee arrangements and changes to those fee arrangements, please see Note 3 in the Notes to Financial Statements.
MFS Research International Portfolio
Portfolio of Investments − 12/31/23
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 99.4% |
| Aerospace & Defense – 1.4% | |
| MTU Aero Engines Holding AG | | 17,906 | $ 3,859,571 |
| Thales S.A. | | 18,947 | 2,801,771 |
| | | | | $6,661,342 |
| Airlines – 0.6% | |
| Ryanair Holdings PLC, ADR (a) | | 21,281 | $ 2,838,034 |
| Alcoholic Beverages – 3.0% | |
| Diageo PLC | | 194,247 | $ 7,071,369 |
| Heineken N.V. | | 38,777 | 3,935,756 |
| Kirin Holdings Co. Ltd. (l) | | 194,000 | 2,842,582 |
| | | | | $13,849,707 |
| Apparel Manufacturers – 4.3% | |
| Burberry Group PLC | | 55,800 | $ 1,007,137 |
| Compagnie Financiere Richemont S.A. | | 36,759 | 5,058,979 |
| LVMH Moet Hennessy Louis Vuitton SE | | 14,661 | 11,873,326 |
| NIKE, Inc., “B” | | 16,790 | 1,822,890 |
| | | | | $19,762,332 |
| Automotive – 2.7% | |
| Bridgestone Corp. (l) | | 72,500 | $ 3,002,837 |
| Compagnie Generale des Etablissements Michelin | | 87,039 | 3,118,975 |
| DENSO Corp. | | 260,800 | 3,934,195 |
| Koito Manufacturing Co. Ltd. | | 154,300 | 2,404,782 |
| | | | | $12,460,789 |
| Biotechnology – 1.0% | |
| CSL Ltd. | | 23,084 | $ 4,509,174 |
| Brokerage & Asset Managers – 3.9% | |
| Euronext N.V. | | 83,942 | $ 7,288,321 |
| Hong Kong Exchanges & Clearing Ltd. | | 96,100 | 3,298,303 |
| London Stock Exchange Group PLC | | 64,478 | 7,622,013 |
| | | | | $18,208,637 |
| Business Services – 1.1% | |
| Nomura Research Institute Ltd. | | 123,700 | $ 3,597,827 |
| Secom Co. Ltd. | | 18,600 | 1,339,596 |
| | | | | $4,937,423 |
| Computer Software – 1.0% | |
| Cadence Design Systems, Inc. (a) | | 17,468 | $ 4,757,759 |
| Computer Software - Systems – 6.7% | |
| Amadeus IT Group S.A. | | 80,134 | $ 5,739,541 |
| Constellation Software, Inc. | | 2,136 | 5,295,903 |
| Fujitsu Ltd. | | 38,400 | 5,794,043 |
| Hitachi Ltd. | | 120,300 | 8,676,957 |
| Samsung Electronics Co. Ltd. | | 93,349 | 5,677,478 |
| | | | | $31,183,922 |
MFS Research International Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Construction – 0.9% | |
| Techtronic Industries Co. Ltd. | | 346,000 | $ 4,123,109 |
| Consumer Products – 0.8% | |
| Kao Corp. | | 89,000 | $ 3,660,993 |
| Consumer Services – 0.9% | |
| CAR Group Ltd. | | 71,485 | $ 1,516,937 |
| Persol Holdings Co. Ltd. | | 765,200 | 1,313,865 |
| SEEK Ltd. | | 69,523 | 1,266,372 |
| | | | | $4,097,174 |
| Electrical Equipment – 5.5% | |
| Legrand S.A. | | 56,039 | $ 5,821,427 |
| Mitsubishi Electric Corp. | | 325,000 | 4,607,624 |
| Schneider Electric SE | | 74,612 | 14,972,842 |
| | | | | $25,401,893 |
| Electronics – 3.3% | |
| ASML Holding N.V. | | 3,882 | $ 2,921,449 |
| Kyocera Corp. | | 222,800 | 3,251,932 |
| NXP Semiconductors N.V. | | 13,373 | 3,071,511 |
| ROHM Co. Ltd. | | 95,100 | 1,822,750 |
| Taiwan Semiconductor Manufacturing Co. Ltd. | | 225,804 | 4,362,971 |
| | | | | $15,430,613 |
| Energy - Independent – 1.3% | |
| Reliance Industries Ltd. | | 77,412 | $ 2,404,725 |
| Woodside Energy Group Ltd. | | 163,515 | 3,460,932 |
| | | | | $5,865,657 |
| Energy - Integrated – 3.9% | |
| Eni S.p.A. | | 281,211 | $ 4,764,678 |
| Galp Energia SGPS S.A., “B” | | 321,969 | 4,741,539 |
| TotalEnergies SE | | 125,050 | 8,503,817 |
| | | | | $18,010,034 |
| Food & Beverages – 3.3% | |
| Nestle S.A. | | 111,068 | $ 12,877,048 |
| Novozymes A/S | | 46,322 | 2,545,662 |
| | | | | $15,422,710 |
| Food & Drug Stores – 0.4% | |
| Seven & I Holdings Co. Ltd. | | 46,900 | $ 1,861,032 |
| Gaming & Lodging – 1.8% | |
| Aristocrat Leisure Ltd. | | 112,740 | $ 3,136,065 |
| Flutter Entertainment PLC (a) | | 7,206 | 1,280,407 |
| Sands China Ltd. (a) | | 547,600 | 1,602,441 |
| Whitbread PLC | | 45,920 | 2,139,927 |
| | | | | $8,158,840 |
MFS Research International Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Insurance – 5.3% | |
| AIA Group Ltd. | | 624,400 | $ 5,441,560 |
| Aon PLC | | 19,790 | 5,759,286 |
| Beazley PLC | | 521,896 | 3,472,526 |
| Hiscox Ltd. | | 158,547 | 2,130,049 |
| Willis Towers Watson PLC | | 9,177 | 2,213,492 |
| Zurich Insurance Group AG | | 10,672 | 5,578,041 |
| | | | | $24,594,954 |
| Leisure & Toys – 0.2% | |
| Yamaha Corp. | | 46,200 | $ 1,067,187 |
| Machinery & Tools – 5.4% | |
| Daikin Industries Ltd. | | 33,900 | $ 5,526,181 |
| GEA Group AG | | 99,833 | 4,153,840 |
| RB Global, Inc. | | 39,997 | 2,676,528 |
| SMC Corp. | | 11,700 | 6,286,468 |
| Toyota Industries Corp. | | 45,500 | 3,710,993 |
| Weir Group PLC | | 109,429 | 2,631,360 |
| | | | | $24,985,370 |
| Major Banks – 6.2% | |
| Bank of Ireland Group PLC | | 212,667 | $ 1,929,371 |
| BNP Paribas | | 110,087 | 7,606,598 |
| DBS Group Holdings Ltd. | | 129,300 | 3,273,281 |
| Mitsubishi UFJ Financial Group, Inc. | | 533,600 | 4,584,797 |
| NatWest Group PLC | | 1,988,971 | 5,562,321 |
| UBS Group AG | | 192,598 | 5,976,824 |
| | | | | $28,933,192 |
| Medical Equipment – 2.4% | |
| ConvaTec Group PLC | | 983,914 | $ 3,062,625 |
| Olympus Corp. | | 103,000 | 1,490,578 |
| QIAGEN N.V. (a) | | 108,257 | 4,708,707 |
| Terumo Corp. | | 60,800 | 1,993,033 |
| | | | | $11,254,943 |
| Metals & Mining – 1.9% | |
| Glencore PLC | | 1,037,503 | $ 6,243,302 |
| Mitsui & Co. Ltd. | | 64,300 | 2,416,039 |
| | | | | $8,659,341 |
| Natural Gas - Distribution – 0.3% | |
| China Resources Gas Group Ltd. | | 425,200 | $ 1,394,009 |
| Natural Gas - Pipeline – 0.3% | |
| APA Group | | 240,806 | $ 1,401,391 |
| Other Banks & Diversified Financials – 3.8% | |
| HDFC Bank Ltd. | | 181,796 | $ 3,734,176 |
| Julius Baer Group Ltd. | | 87,327 | 4,895,628 |
| Macquarie Group Ltd. | | 32,106 | 4,017,574 |
| Visa, Inc., “A” | | 19,718 | 5,133,581 |
| | | | | $17,780,959 |
MFS Research International Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Pharmaceuticals – 9.2% | |
| Bayer AG | | 65,114 | $ 2,417,412 |
| Kyowa Kirin Co. Ltd. | | 201,700 | 3,390,277 |
| Merck KGaA | | 28,024 | 4,458,036 |
| Novo Nordisk A.S., “B” | | 139,527 | 14,424,423 |
| Roche Holding AG | | 44,417 | 12,912,379 |
| Sanofi | | 33,355 | 3,305,166 |
| Santen Pharmaceutical Co. Ltd. | | 181,600 | 1,809,560 |
| | | | | $42,717,253 |
| Printing & Publishing – 0.8% | |
| Wolters Kluwer N.V. | | 25,135 | $ 3,571,140 |
| Real Estate – 1.2% | |
| LEG Immobilien SE (a) | | 64,722 | $ 5,667,403 |
| Restaurants – 0.4% | |
| Yum China Holdings, Inc. | | 37,720 | $ 1,600,460 |
| Specialty Chemicals – 7.8% | |
| Akzo Nobel N.V. | | 30,604 | $ 2,527,815 |
| Croda International PLC | | 58,388 | 3,758,426 |
| Kansai Paint Co. Ltd. | | 96,400 | 1,647,004 |
| Linde PLC | | 36,407 | 14,952,719 |
| Nitto Denko Corp. | | 54,400 | 4,070,355 |
| Sika AG | | 16,097 | 5,238,391 |
| Symrise AG | | 37,495 | 4,124,360 |
| | | | | $36,319,070 |
| Specialty Stores – 0.3% | |
| ZOZO, Inc. | | 59,300 | $ 1,335,301 |
| Telecommunications - Wireless – 2.5% | |
| Advanced Info Service Public Co. Ltd. | | 417,100 | $ 2,651,746 |
| Cellnex Telecom S.A. | | 75,928 | 2,989,047 |
| KDDI Corp. | | 111,200 | 3,537,895 |
| SoftBank Group Corp. | | 49,000 | 2,186,929 |
| | | | | $11,365,617 |
| Telephone Services – 0.3% | |
| Hellenic Telecommunications Organization S.A. | | 107,503 | $ 1,530,946 |
| Tobacco – 1.1% | |
| British American Tobacco PLC | | 170,408 | $ 4,986,069 |
| Utilities - Electric Power – 2.2% | |
| CLP Holdings Ltd. | | 253,000 | $ 2,088,218 |
| E.ON SE | | 208,327 | 2,794,289 |
| Iberdrola S.A. | | 416,073 | 5,452,174 |
| | | | | $10,334,681 |
| Total Common Stocks (Identified Cost, $370,926,618) | | $460,700,460 |
MFS Research International Portfolio
Portfolio of Investments – continued
| Issuer | Strike
Price | First
Exercise | Shares/Par | Value ($) |
| Warrants – 0.0% | | | | |
| Computer Software - Systems – 0.0% |
Constellation Software, Inc. (CAD 100 principal amount of Series 2 Debentures for 1 warrant, Expiration 3/31/40) (a)
(Identified Cost, $0) | CAD 11.5 | N/A | 2,868 | $ 0 |
| | | | | |
| Investment Companies (h) – 0.7% |
| Money Market Funds – 0.7% | |
| MFS Institutional Money Market Portfolio, 5.42% (v) (Identified Cost, $3,012,429) | | | 3,012,181 | $ 3,012,784 |
| Other Assets, Less Liabilities – (0.1)% | | (323,009) |
| Net Assets – 100.0% | $463,390,235 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $3,012,784 and $460,700,460, respectively. | | | |
| (l) | A portion of this security is on loan. See Note 2 for additional information. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below: |
| CAD | Canadian Dollar |
See Notes to Financial Statements
MFS Research International Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/23Assets | |
| Investments in unaffiliated issuers, at value, including $5,249,127 of securities on loan (identified cost, $370,926,618) | $460,700,460 |
| Investments in affiliated issuers, at value (identified cost, $3,012,429) | 3,012,784 |
| Foreign currency, at value (identified cost, $62) | 63 |
| Receivables for | |
| Fund shares sold | 96,066 |
| Interest and dividends | 1,505,612 |
| Other assets | 2,916 |
| Total assets | $465,317,901 |
| Liabilities | |
| Payables for | |
| Investments purchased | $775,309 |
| Fund shares reacquired | 838,485 |
| Payable to affiliates | |
| Investment adviser | 35,546 |
| Administrative services fee | 738 |
| Shareholder servicing costs | 17 |
| Distribution and/or service fees | 3,217 |
| Deferred foreign capital gains tax expense payable | 169,092 |
| Accrued expenses and other liabilities | 105,262 |
| Total liabilities | $1,927,666 |
| Net assets | $463,390,235 |
| Net assets consist of | |
| Paid-in capital | $386,301,678 |
| Total distributable earnings (loss) | 77,088,557 |
| Net assets | $463,390,235 |
| Shares of beneficial interest outstanding | 27,555,176 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $346,484,844 | 20,523,517 | $16.88 |
| Service Class | 116,905,391 | 7,031,659 | 16.63 |
See Notes to Financial Statements
MFS Research International Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/23 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $11,815,523 |
| Dividends from affiliated issuers | 190,763 |
| Interest | 7,401 |
| Income on securities loaned | 3,441 |
| Other | 496 |
| Foreign taxes withheld | (1,021,873) |
| Total investment income | $10,995,751 |
| Expenses | |
| Management fee | $3,976,390 |
| Distribution and/or service fees | 295,963 |
| Shareholder servicing costs | 5,295 |
| Administrative services fee | 74,011 |
| Independent Trustees' compensation | 7,588 |
| Custodian fee | 76,849 |
| Shareholder communications | 4,603 |
| Audit and tax fees | 68,851 |
| Legal fees | 2,406 |
| Miscellaneous | 28,448 |
| Total expenses | $4,540,404 |
| Reduction of expenses by investment adviser | (141,045) |
| Net expenses | $4,399,359 |
| Net investment income (loss) | $6,596,392 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (includes $46,456 foreign capital gains tax) | $(4,828,597) |
| Affiliated issuers | 471 |
| Foreign currency | (47,711) |
| Net realized gain (loss) | $(4,875,837) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (includes $94,276 increase in deferred foreign capital gains tax) | $55,568,483 |
| Affiliated issuers | (636) |
| Translation of assets and liabilities in foreign currencies | 57,769 |
| Net unrealized gain (loss) | $55,625,616 |
| Net realized and unrealized gain (loss) | $50,749,779 |
| Change in net assets from operations | $57,346,171 |
See Notes to Financial Statements
MFS Research International Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/23 | 12/31/22 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $6,596,392 | $4,826,114 |
| Net realized gain (loss) | (4,875,837) | 29,297,695 |
| Net unrealized gain (loss) | 55,625,616 | (104,113,081) |
| Change in net assets from operations | $57,346,171 | $(69,989,272) |
| Total distributions to shareholders | $(4,297,390) | $(13,773,367) |
| Change in net assets from fund share transactions | $(32,018,140) | $(2,718,334) |
| Total change in net assets | $21,030,641 | $(86,480,973) |
| Net assets | | |
| At beginning of period | 442,359,594 | 528,840,567 |
| At end of period | $463,390,235 | $442,359,594 |
See Notes to Financial Statements
MFS Research International Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $15.10 | $19.13 | $18.14 | $16.96 | $14.07 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.25 | $0.22 | $0.18 | $0.17 | $0.31 |
| Net realized and unrealized gain (loss) | 1.70 | (3.59) | 1.91 | 1.92 | 3.51 |
| Total from investment operations | $1.95 | $(3.37) | $2.09 | $2.09 | $3.82 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.17) | $(0.30) | $(0.16) | $(0.34) | $(0.24) |
| From net realized gain | — | (0.36) | (0.94) | (0.57) | (0.69) |
| Total distributions declared to shareholders | $(0.17) | $(0.66) | $(1.10) | $(0.91) | $(0.93) |
| Net asset value, end of period (x) | $16.88 | $15.10 | $19.13 | $18.14 | $16.96 |
| Total return (%) (k)(r)(s)(x) | 13.01 | (17.58) | 11.57 | 12.95 | 28.04 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.96 | 0.99 | 0.96 | 0.98 | 0.99 |
| Expenses after expense reductions | 0.93 | 0.96 | 0.95 | 0.96 | 0.96 |
| Net investment income (loss) | 1.55 | 1.40 | 0.96 | 1.06 | 1.99 |
| Portfolio turnover | 18 | 22 | 23 | 28 | 24 |
| Net assets at end of period (000 omitted) | $346,485 | $314,093 | $387,370 | $369,243 | $356,291 |
| Service Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $14.86 | $18.84 | $17.90 | $16.74 | $13.90 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.21 | $0.19 | $0.13 | $0.14 | $0.26 |
| Net realized and unrealized gain (loss) | 1.69 | (3.55) | 1.88 | 1.89 | 3.47 |
| Total from investment operations | $1.90 | $(3.36) | $2.01 | $2.03 | $3.73 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.13) | $(0.26) | $(0.13) | $(0.30) | $(0.20) |
| From net realized gain | — | (0.36) | (0.94) | (0.57) | (0.69) |
| Total distributions declared to shareholders | $(0.13) | $(0.62) | $(1.07) | $(0.87) | $(0.89) |
| Net asset value, end of period (x) | $16.63 | $14.86 | $18.84 | $17.90 | $16.74 |
| Total return (%) (k)(r)(s)(x) | 12.83 | (17.80) | 11.27 | 12.71 | 27.67 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.21 | 1.24 | 1.22 | 1.23 | 1.24 |
| Expenses after expense reductions | 1.18 | 1.21 | 1.20 | 1.21 | 1.21 |
| Net investment income (loss) | 1.32 | 1.20 | 0.69 | 0.87 | 1.65 |
| Portfolio turnover | 18 | 22 | 23 | 28 | 24 |
| Net assets at end of period (000 omitted) | $116,905 | $128,267 | $141,471 | $120,742 | $100,445 |
See Notes to Financial Statements
MFS Research International Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS Research International Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Research International Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party
MFS Research International Portfolio
Notes to Financial Statements - continued
pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2023 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| Japan | $93,163,612 | $— | $— | $93,163,612 |
| France | 65,292,243 | — | — | 65,292,243 |
| Switzerland | 52,537,290 | — | — | 52,537,290 |
| United Kingdom | 49,687,124 | — | — | 49,687,124 |
| United States | 37,711,238 | — | — | 37,711,238 |
| Germany | 32,183,618 | — | — | 32,183,618 |
| Australia | 19,308,445 | — | — | 19,308,445 |
| Denmark | 16,970,085 | — | — | 16,970,085 |
| Hong Kong | 16,553,631 | — | — | 16,553,631 |
| Other Countries | 68,963,950 | 8,329,224 | — | 77,293,174 |
| Mutual Funds | 3,012,784 | — | — | 3,012,784 |
| Total | $455,384,020 | $8,329,224 | $— | $463,713,244 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund’s Portfolio of Investments, with a fair value of $5,249,127. The fair value of the fund’s investment securities on loan is presented gross in the Statement of Assets and Liabilities. These loans were collateralized by U.S. Treasury Obligations of $5,563,166 held by the custodian. The collateral on securities loaned exceeded the value of securities on loan at period end. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the
MFS Research International Portfolio
Notes to Financial Statements - continued
remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Investment transactions are recorded on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to passive foreign investment companies and wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/23 | Year ended
12/31/22 |
| Ordinary income (including any short-term capital gains) | $4,297,390 | $10,502,993 |
| Long-term capital gains | — | 3,270,374 |
| Total distributions | $4,297,390 | $13,773,367 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/23 | |
| Cost of investments | $378,796,555 |
| Gross appreciation | 104,381,635 |
| Gross depreciation | (19,464,946) |
| Net unrealized appreciation (depreciation) | $84,916,689 |
| Undistributed ordinary income | 7,362,548 |
| Capital loss carryforwards | (15,019,362) |
| Other temporary differences | (171,318) |
| Total distributable earnings (loss) | $77,088,557 |
MFS Research International Portfolio
Notes to Financial Statements - continued
As of December 31, 2023, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(519,265) |
| Long-Term | (14,500,097) |
| Total | $(15,019,362) |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/23 | | Year
ended
12/31/22 |
| Initial Class | $3,411,851 | | $8,626,934 |
| Service Class | 885,539 | | 5,146,433 |
| Total | $4,297,390 | | $13,773,367 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.90% |
| In excess of $1 billion and up to $2 billion | 0.80% |
| In excess of $2 billion | 0.70% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this management fee reduction amounted to $56,510, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.89% of the fund's average daily net assets.
For the period from January 1, 2023 through July 31, 2023, the investment adviser had agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses did not exceed 0.96% of average daily net assets for the Initial Class shares and 1.21% of average daily net assets for the Service Class shares. This written agreement was terminated on July 31, 2023. For the period from January 1, 2023 through July 31, 2023, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement. Effective August 1, 2023, the investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.89% of average daily net assets for the Initial Class shares and 1.14% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2025. For the period from August 1, 2023 through December 31, 2023, this reduction amounted to $84,535, which is included in the reduction of total expenses in the Statements of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
MFS Research International Portfolio
Notes to Financial Statements - continued
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares as well as shareholder servicing and account maintenance activities. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. The distribution and/or service fees are computed daily and paid monthly.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2023, the fee was $3,792, which equated to 0.0009% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2023, these costs amounted to $1,503.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is computed daily and paid monthly. The administrative services fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.0167% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
During the year ended December 31, 2023, pursuant to a policy adopted by the Board of Trustees and designed to comply with Rule 17a-7 under the Investment Company Act of 1940 (the “Act”) and relevant guidance, the fund engaged in sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) which amounted to $38,825. The sales transactions resulted in net realized gains (losses) of $(29,279).
(4) Portfolio Securities
For the year ended December 31, 2023, purchases and sales of investments, other than short-term obligations, aggregated $78,305,550 and $106,216,959, respectively.
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 1,532,677 | $23,585,812 | | 8,640,598 | $127,704,449 |
| Service Class | 1,490,697 | 23,637,555 | | 2,676,944 | 42,224,462 |
| | 3,023,374 | $47,223,367 | | 11,317,542 | $169,928,911 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 215,667 | $3,411,851 | | 573,981 | $8,626,934 |
| Service Class | 56,802 | 885,539 | | 347,497 | 5,146,433 |
| | 272,469 | $4,297,390 | | 921,478 | $13,773,367 |
MFS Research International Portfolio
Notes to Financial Statements - continued
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares reacquired | | | | | |
| Initial Class | (2,026,696) | $(32,655,004) | | (8,667,276) | $(156,672,950) |
| Service Class | (3,144,794) | (50,883,893) | | (1,904,730) | (29,747,662) |
| | (5,171,490) | $(83,538,897) | | (10,572,006) | $(186,420,612) |
| Net change | | | | | |
| Initial Class | (278,352) | $(5,657,341) | | 547,303 | $(20,341,567) |
| Service Class | (1,597,295) | (26,360,799) | | 1,119,711 | 17,623,233 |
| | (1,875,647) | $(32,018,140) | | 1,667,014 | $(2,718,334) |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Growth Allocation Portfolio, and the MFS Conservative Allocation Portfolio were the owners of record of approximately 17%, 6%, and 3%, respectively, of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 14, 2024 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2023, the fund’s commitment fee and interest expense were $2,097 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $4,172,046 | $61,121,483 | $62,280,580 | $471 | $(636) | $3,012,784 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $190,763 | $— |
MFS Research International Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Research International Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Research International Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 2024
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Research International Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2024, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 57) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 69) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 72) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 69) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 68) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 68) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 62) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 67) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 67) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 66) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 55) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
MFS Research International Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
John W. Clark, Jr. (k)
(age 56) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 55) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 56) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 47) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022) |
Amanda S. Mooradian (k)
(age 44) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 53) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 53) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
James O. Yost (k)
(age 63) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Caroselli, Jones and Otis are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
MFS Research International Portfolio
Trustees and Officers - continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Congress Street, Suite 1
Boston, MA 02114-2016 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Camille Humphries Lee
Nicholas Paul | |
MFS Research International Portfolio
Board Review of Investment Advisory Agreement
MFS Research International Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2023 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2022 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2022, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 5th quintile for the one-year period and the 1st quintile for the three-year period ended December 31, 2022 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS Research International Portfolio
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each higher than the Broadridge expense group median. The Trustees also noted that MFS has agreed to further reduce the expense limitation for the Fund effective August 1, 2023, which may not be changed without the Trustees’ approval.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2023.
MFS Research International Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
Income derived from foreign sources was $11,735,963. The fund intends to pass through foreign tax credits of $1,020,000 for the fiscal year.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2023
MFS® Variable Insurance Trust II
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
Portfolio structure at value (v)
Portfolio structure reflecting equivalent exposure of derivative positions (i)
Fixed income sectors (i)
| U.S. Treasury Securities | 52.9% |
| Investment Grade Corporates | 28.0% |
| Collateralized Debt Obligations | 9.9% |
| High Yield Corporates | 8.9% |
| Emerging Markets Bonds | 3.8% |
| Commercial Mortgage-Backed Securities | 2.9% |
| Municipal Bonds | 2.4% |
| Asset-Backed Securities | 1.3% |
| Mortgage-Backed Securities (o) | 0.0% |
| U.S. Government Agencies (o) | 0.0% |
Composition including fixed income credit quality (a)(i)
| AAA | 3.2% |
| AA | 2.5% |
| A | 10.1% |
| BBB | 26.8% |
| BB | 8.1% |
| B | 3.8% |
| CCC | 1.3% |
| D (o) | 0.0% |
| U.S. Government | 41.7% |
| Federal Agencies (o) | 0.0% |
| Not Rated | 12.6% |
| Non-Fixed Income (o) | 0.0% |
| Cash & Cash Equivalents | 1.1% |
| Other (q) | (11.2)% |
Portfolio facts
| Average Duration (d) | 6.2 |
| Average Effective Maturity (m) | 7.2 yrs. |
Portfolio Composition - continued
| (a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities and fixed income derivatives that have not been rated by any rating agency. Non-Fixed Income includes equity securities (including convertible bonds and equity derivatives), ETFs and Options on ETFs, and/or commodity-linked derivatives. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
| (d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move. The Average Duration calculation reflects the impact of the equivalent exposure of derivative positions, if any. |
| (i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
| (m) | In determining each instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening feature (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
| (p) | For purposes of the presentation of Portfolio structure at value, Other includes the direct and indirect market value from currency derivatives and may be negative. |
| (q) | For purposes of this presentation, Other includes the direct and indirect equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative. |
| (v) | For purposes of this presentation, market value of fixed income and/or equity derivatives, if any, is included in Cash & Cash Equivalents. |
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
The fund invests a portion of its assets in the MFS High Yield Pooled Portfolio. Percentages include the indirect exposure to the underlying holdings, including investments in money market funds and Other, of the MFS High Yield Pooled Portfolio and not the direct exposure from investing in the MFS High Yield Pooled Portfolio itself.
Cash & Cash Equivalents includes any direct exposure to cash, direct and indirect exposure to investments in money market funds, cash equivalents, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s direct cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2023.
The portfolio is actively managed and current holdings may be different.
Management Review
Summary of Results
For the twelve months ended December 31, 2023, Initial Class shares of the MFS Income Portfolio (fund) provided a total return of 7.59%, while Service Class shares of the fund provided a total return of 7.36%. These compare with a return of 5.53% over the same period for the fund’s benchmark, the Bloomberg U.S. Aggregate Bond Index.
Market Environment
During the reporting period, central banks around the world had to combat the strongest inflationary pressures in four decades, fueled by the global fiscal response to the pandemic, disrupted supply chains and the dislocations to energy markets stemming from the war in Ukraine. Interest rates rose substantially, but the effects of a tighter monetary policy may not have been fully experienced yet, given that monetary policy works with long and variable lags. Strains resulting from the abrupt tightening of monetary policy began to affect some parts of the economy, most acutely among small and regional US banks, which suffered from deposit flight as depositors sought higher yields on their savings. Additionally, activity in the US housing sector has slowed as a result of higher mortgage rates. China’s abandonment of its Zero-COVID policy ushered in a brief uptick in economic activity in the world’s second-largest economy in early 2023, although its momentum soon stalled as the focus turned to the country’s highly indebted property development sector. In developed markets, consumer demand for services remained stronger than the demand for goods.
Early on, policymakers found themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, central banks focused on controlling price pressures while also confronting increasing financial stability concerns. Central banks had to juggle achieving their inflation mandates while using macroprudential tools (financial policies aimed at safeguarding the stability of the financial system) to keep banking systems liquid, a potentially difficult balancing act, and one that suggested that we may be nearing a peak in policy rates. As inflationary pressures eased toward the end of the period, financial conditions loosened in anticipation of easier monetary policy, boosting the market’s appetite for risk. Rapid advancements in artificial intelligence were a focus for investors.
Normalizing supply chains, low levels of unemployment across developed markets and signs that inflation levels have peaked were supportive factors for the macroeconomic backdrop.
Factors Affecting Performance
Relative to the Bloomberg U.S. Aggregate Bond Index, the fund’s exposure to collateralized mortgage obligations (CMOs), for which the benchmark has no exposure, and its overweight allocation to both the industrials and financial institutions sectors, contributed to relative performance.
Security selection further aided the fund’s relative returns during the reporting period. From a sector perspective, favorable bond selection within both the industrials and financial institutions sectors helped relative results. From a credit quality perspective, security selection within the “BBB” rated(r) quality segment benefited relative performance.
Conversely, the fund’s yield curve(y) positioning detracted from relative returns. The fund’s out-of-benchmark exposure to the municipal bonds sector also hindered relative performance.
Respectfully,
Portfolio Manager(s)
Neeraj Arora, Philipp Burgener, David Cole, Alexander Mackey, Joshua Marston, and Michael Skatrud
| (r) | Securities rated “BBB”, “Baa”, or higher are considered investment grade; securities rated “BB”, “Ba”, or below are considered non-investment grade. Ratings are assigned to underlying securities utilizing ratings from Moody's, Fitch, and Standard & Poor's and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). For securities that are not rated by any of the rating agencies, the security is considered Not Rated. |
| (y) | A yield curve graphically depicts the yields of different maturity bonds of the same credit quality and type; a normal yield curve is upward sloping, with short-term rates lower than long-term rates. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
Performance Summary Through 12/31/23
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/23
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 5/06/1998 | 7.59% | 2.62% | 2.66% |
| Service Class | 8/24/2001 | 7.36% | 2.37% | 2.42% |
Comparative benchmark(s)
| Bloomberg U.S. Aggregate Bond Index (f) | 5.53% | 1.10% | 1.81% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Bloomberg U.S. Aggregate Bond Index(a) – a market capitalization-weighted index that measures the performance of the U.S. investment-grade, fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities with at least one year to final maturity.
It is not possible to invest directly in an index.
| (a) | Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg's licensors own all proprietary rights in the Bloomberg Indices. Bloomberg neither approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. |
Performance Summary – continued
Notes to Performance Summary
Performance information prior to December 2, 2019 reflects time periods when the fund had (i) a policy permitting the fund to invest up to 100% of its assets in below investment grade quality debt instruments and (ii) a policy permitting the fund to invest in equity securities as a principal investment strategy. The fund’s investment policies and strategies changed effective December 2, 2019.
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2023 through December 31, 2023
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the MFS High Yield Pooled Portfolio, an underlying MFS Pooled Portfolio in which the fund invests. MFS Pooled Portfolios are mutual funds advised by MFS that do not pay management fees to MFS but do incur investment and operating costs. If these transactional and indirect costs were included, your costs would have been higher.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2023 through December 31, 2023.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/23 | Ending
Account Value
12/31/23 | Expenses
Paid During
Period (p)
7/01/23-12/31/23 |
| Initial Class | Actual | 0.69% | $1,000.00 | $1,043.63 | $3.55 |
| Hypothetical (h) | 0.69% | $1,000.00 | $1,021.73 | $3.52 |
| Service Class | Actual | 0.93% | $1,000.00 | $1,043.75 | $4.79 |
| Hypothetical (h) | 0.93% | $1,000.00 | $1,020.52 | $4.74 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. If these indirect costs were included, your costs would have been higher. |
Notes to Expense Table
Changes to the fund's fee arrangements occurred during the six month period. Had these fee changes been in effect throughout the entire six month period, the annualized expense ratios, the actual expenses paid during the period, and the hypothetical expenses paid during the period would have been approximately 0.67%, $3.45, and $3.41 for Initial Class and 0.92%, $4.74, and $4.69 for Service Class, respectively. For further information about the fund’s fee arrangements and changes to those fee arrangements, please see Note 3 in the Notes to Financial Statements.
Portfolio of Investments − 12/31/23
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Bonds – 91.6% |
| Aerospace & Defense – 0.5% |
| Boeing Co., 5.705%, 5/01/2040 | | $ | 34,000 | $ 35,154 |
| Boeing Co., 5.805%, 5/01/2050 | | | 121,000 | 125,301 |
| | | | | $160,455 |
| Asset-Backed & Securitized – 14.0% |
| Allegro CLO Ltd., 2014-1RA, “C”, FLR, 8.673% ((SOFR - 3mo. + 0.26161%) + 3%), 10/21/2028 (n) | | $ | 250,000 | $ 248,698 |
| Arbor Realty Trust, Inc., CLO, 2021-FL1, “D”, FLR, 8.398% ((SOFR - 1mo. + 0.11448%) + 2.95%), 12/15/2035 (n) | | | 100,000 | 97,930 |
| Arbor Realty Trust, Inc., CLO, 2021-FL3, “D”, FLR, 7.676% ((SOFR - 1mo. + 0.11448%) + 2.2%), 8/15/2034 (n) | | | 100,000 | 93,996 |
| Arbor Realty Trust, Inc., CLO, 2021-FL4, “D”, FLR, 8.348% ((SOFR - 1mo. + 0.11448%) + 2.9%), 11/15/2036 (n) | | | 256,500 | 245,741 |
| AREIT 2019-CRE3 Trust, “D”, FLR, 8.126% ((SOFR - 1mo. + 0.11448%) + 2.65%), 9/14/2036 (n) | | | 271,000 | 242,869 |
| ARI Fleet Lease Trust, 2023-B, “A2”, 6.05%, 7/15/2032 (n) | | | 100,000 | 101,111 |
| Bayview Financial Revolving Mortgage Loan Trust, FLR, 7.071% ((SOFR - 1mo. + 0.11448%) + 1.6%), 12/28/2040 (n) | | | 41,171 | 60,533 |
| Business Jet Securities LLC, 2020-1A, “A”, 2.981%, 11/15/2035 (n) | | | 19,703 | 18,828 |
| Capital Automotive, 2020-1A, “B1”, REIT, 4.17%, 2/15/2050 (n) | | | 110,227 | 105,368 |
| CLNC 2019-FL1 Ltd., “C”, FLR, 7.87% (SOFR - 1mo. + 2.51448%), 8/20/2035 (n) | | | 265,000 | 257,597 |
| Commercial Equipment Finance 2021-A, LLC, “A”, 2.05%, 2/16/2027 (n) | | | 38,650 | 37,812 |
| Commercial Mortgage Pass-Through Certificates, 2023-BNK46, “B”, 6.773%, 8/15/2056 | | | 93,513 | 97,929 |
| Commercial Mortgage Trust, 2015-PC1, “A5”, 3.902%, 7/10/2050 | | | 346,107 | 336,409 |
| Consumers 2023 Securitization Funding LLC, 5.55%, 3/01/2028 | | | 95,000 | 95,370 |
| Crest Ltd., CDO, 7% (0.001% Cash or 7% PIK), 1/28/2040 (a)(p) | | | 933,316 | 9 |
| Cutwater 2015-1A Ltd., “BR”, FLR, 7.455% ((SOFR - 3mo. + 0.26161%) + 1.8%), 1/15/2029 (n) | | | 250,000 | 248,576 |
| KREF 2021-FL2 Ltd., “D”, FLR, 7.646% ((SOFR - 1mo. + 0.11448%) + 2.2%), 2/15/2039 (n) | | | 163,000 | 143,277 |
| LCCM 2021-FL2 Trust, “C”, FLR, 7.626% ((SOFR - 1mo. + 0.11448%) + 2.15%), 12/13/2038 (n) | | | 100,000 | 92,789 |
| LoanCore 2019-CRE2 Ltd., “D”, FLR, 7.926% ((SOFR - 1mo. + 0.11448%) + 2.45%), 5/15/2036 (n) | | | 209,000 | 194,331 |
| MF1 2020-FL4 Ltd., “B”, FLR, 8.226% ((SOFR - 1mo. + 0.11448%) + 2.75%), 11/15/2035 (n) | | | 250,000 | 249,308 |
| MSWF Commercial Mortgage Trust 2023-2, “A5”, 6.014%, 12/15/2056 | | | 73,785 | 79,241 |
| MSWF Commercial Mortgage Trust 2023-2, “AS”, 6.491%, 12/15/2056 | | | 50,728 | 54,541 |
| Neuberger Berman CLO Ltd., 2013-15A, “CR2”, FLR, 7.505% ((SOFR - 3mo. + 0.26161%) + 1.85%), 10/15/2029 (n) | | | 250,000 | 246,622 |
| Oaktree CLO 2019-1A Ltd., “CR”, FLR, 8.023% ((SOFR - 3mo. + 0.26161%) + 2.35%), 4/22/2030 (n) | | | 263,644 | 260,160 |
| Parallel 2015-1A Ltd., “DR”, FLR, 8.227% ((SOFR - 3mo. + 0.26161%) + 2.55%), 7/20/2027 (n) | | | 210,412 | 209,402 |
| Race Point CLO Ltd., 2013-8A, “CR2”, FLR, 7.679% ((SOFR - 3mo. + 0.26161%) + 2.05%), 2/20/2030 (n) | | | 250,000 | 245,250 |
| ReadyCap Commercial Mortgage Trust, 2021-FL7, “D”, FLR, 8.42% ((SOFR - 1mo. + 0.11448%) + 2.95%), 11/25/2036 (z) | | | 120,000 | 109,597 |
| UBS Commercial Mortgage Trust, 2017-C7, “A4”, 3.679%, 12/15/2050 | | | 155,000 | 143,234 |
| Voya CLO 2012-4A Ltd., “C1R3”, FLR, 8.955% ((SOFR - 3mo. + 0.26161%) + 3.3%), 10/15/2030 (n) | | | 250,000 | 248,180 |
| | | | | $4,564,708 |
| Broadcasting – 0.7% |
| Discovery Communications LLC, 4.65%, 5/15/2050 | | $ | 95,000 | $ 76,311 |
| WarnerMedia Holdings, Inc., 5.141%, 3/15/2052 | | | 157,000 | 134,762 |
| | | | | $211,073 |
| Brokerage & Asset Managers – 0.6% |
| Charles Schwab Corp., 5% to 6/01/2027, FLR (CMT - 5yr. + 3.256%) to 6/01/2170 | | $ | 86,000 | $ 77,638 |
| LPL Holdings, Inc., 4.375%, 5/15/2031 (n) | | | 141,000 | 127,680 |
| | | | | $205,318 |
| Business Services – 0.3% |
| Global Payments, Inc., 2.9%, 5/15/2030 | | $ | 120,000 | $ 105,550 |
| Cable TV – 0.6% |
| Charter Communications Operating LLC/Charter Communications Operating Capital Corp., 3.9%, 6/01/2052 | | $ | 176,000 | $ 118,339 |
| Time Warner Cable, Inc., 4.5%, 9/15/2042 | | | 77,000 | 60,425 |
| | | | | $178,764 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Computer Software – 0.4% |
| Dell International LLC/EMC Corp., 5.3%, 10/01/2029 | | $ | 130,000 | $ 133,874 |
| Conglomerates – 0.9% |
| Westinghouse Air Brake Technologies Corp., 4.7%, 9/15/2028 | | $ | 304,000 | $ 300,611 |
| Consumer Services – 0.7% |
| Expedia Group, Inc., 3.25%, 2/15/2030 | | $ | 81,000 | $ 74,253 |
| Toll Road Investors Partnership II LP, Capital Appreciation, NPFG, 0%, 2/15/2026 (n) | | | 46,000 | 39,652 |
| Toll Road Investors Partnership II LP, Capital Appreciation, NPFG, 0%, 2/15/2029 (n) | | | 132,000 | 91,724 |
| Toll Road Investors Partnership II LP, Capital Appreciation, NPFG, 0%, 2/15/2031 (n) | | | 46,000 | 27,510 |
| | | | | $233,139 |
| Electronics – 0.3% |
| Broadcom, Inc., 4.3%, 11/15/2032 | | $ | 96,000 | $ 92,099 |
| Emerging Market Quasi-Sovereign – 0.8% |
| Ipoteka Bank (Republic of Uzbekistan), 5.5%, 11/19/2025 | | $ | 200,000 | $ 185,664 |
| Petroleos Mexicanos, 5.95%, 1/28/2031 | | | 108,000 | 86,238 |
| | | | | $271,902 |
| Emerging Market Sovereign – 1.6% |
| Dominican Republic, 4.875%, 9/23/2032 (n) | | $ | 150,000 | $ 136,372 |
| Federal Republic of Nigeria, 7.375%, 9/28/2033 | | | 200,000 | 170,260 |
| Republic of Cote d'Ivoire, 4.875%, 1/30/2032 (n) | | EUR | 100,000 | 92,807 |
| Republic of Turkey, 6.875%, 3/17/2036 | | $ | 107,000 | 102,078 |
| | | | | $501,517 |
| Energy - Independent – 0.9% |
| EQT Corp., 5%, 1/15/2029 | | $ | 190,000 | $ 188,218 |
| Santos Finance Ltd., 6.875%, 9/19/2033 (n) | | | 102,000 | 108,174 |
| | | | | $296,392 |
| Financial Institutions – 2.9% |
| AerCap Ireland Capital DAC/AerCap Global Aviation Trust, 3.65%, 7/21/2027 | | $ | 195,000 | $ 185,281 |
| Air Lease Corp., 5.85%, 12/15/2027 | | | 160,000 | 164,136 |
| Air Lease Corp., 2.875%, 1/15/2032 | | | 200,000 | 169,232 |
| Avolon Holdings Funding Ltd., 3.25%, 2/15/2027 (n) | | | 48,000 | 44,392 |
| Avolon Holdings Funding Ltd., 2.75%, 2/21/2028 (n) | | | 194,000 | 172,338 |
| Shriram Transport Finance Co. Ltd., 4.4%, 3/13/2024 (n) | | | 200,000 | 198,562 |
| | | | | $933,941 |
| Food & Beverages – 0.9% |
| Bacardi Ltd., 5.15%, 5/15/2038 (n) | | $ | 115,000 | $ 109,340 |
| Central America Bottling Co., 5.25%, 4/27/2029 (n) | | | 199,000 | 186,807 |
| | | | | $296,147 |
| Gaming & Lodging – 0.6% |
| GLP Capital LP/GLP Financing II, Inc., 4%, 1/15/2030 | | $ | 118,000 | $ 107,673 |
| GLP Capital LP/GLP Financing II, Inc., 4%, 1/15/2031 | | | 45,000 | 40,528 |
| Marriott International, Inc., 2.85%, 4/15/2031 | | | 61,000 | 52,794 |
| | | | | $200,995 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Insurance – 0.7% |
| Corebridge Financial, Inc., 4.35%, 4/05/2042 | | $ | 20,000 | $ 16,951 |
| Corebridge Financial, Inc., 4.4%, 4/05/2052 | | | 60,000 | 50,289 |
| Corebridge Financial, Inc., 6.875% to 12/15/2027, FLR (CMT - 5yr. + 3.846%) to 12/15/2052 | | | 150,000 | 149,491 |
| | | | | $216,731 |
| Insurance - Health – 0.7% |
| Humana, Inc., 5.875%, 3/01/2033 | | $ | 196,000 | $ 208,797 |
| Insurance - Property & Casualty – 1.8% |
| Allied World Assurance Co. Holdings Ltd., 4.35%, 10/29/2025 | | $ | 191,000 | $ 185,965 |
| Aon Corp., 4.5%, 12/15/2028 | | | 115,000 | 113,589 |
| Fairfax Financial Holdings Ltd., 4.85%, 4/17/2028 | | | 283,000 | 278,613 |
| Fairfax Financial Holdings Ltd., 3.375%, 3/03/2031 | | | 15,000 | 13,181 |
| | | | | $591,348 |
| Machinery & Tools – 1.2% |
| Ashtead Capital, Inc., 5.5%, 8/11/2032 (n) | | $ | 200,000 | $ 197,565 |
| Ashtead Capital, Inc., 5.55%, 5/30/2033 (n) | | | 200,000 | 197,890 |
| | | | | $395,455 |
| Major Banks – 6.1% |
| Bank of America Corp., 4.271% to 7/23/2028, FLR ((SOFR - 3mo. + 0.26161%) + 1.31%) to 7/23/2029 | | $ | 61,000 | $ 58,895 |
| Bank of America Corp., 2.572% to 10/20/2031, FLR (SOFR - 1 day + 1.21%) to 10/20/2032 | | | 415,000 | 344,065 |
| Bank of America Corp., 3.846% to 3/08/2032, FLR (CMT - 1yr. + 2%) to 3/08/2037 | | | 215,000 | 188,771 |
| Barclays PLC, 7.437% to 11/02/2032, FLR (CMT - 1yr. + 3.5%) to 11/02/2033 | | | 200,000 | 223,945 |
| Goldman Sachs Group, Inc., 3.102% to 2/24/2032, FLR (SOFR - 1 day + 1.41%) to 2/24/2033 | | | 148,000 | 127,045 |
| HSBC Holdings PLC, 4.7% to 9/09/2031, FLR (CMT - 1yr. + 3.25%) to 9/09/2169 | | | 200,000 | 162,889 |
| JPMorgan Chase & Co., 2.956% to 5/13/2030, FLR (SOFR - 1 day + 2.515%) to 5/13/2031 | | | 81,000 | 71,180 |
| Morgan Stanley, 5.449% to 7/20/2028, FLR (SOFR - 1 day + 1.63%) to 7/20/2029 | | | 25,000 | 25,474 |
| Morgan Stanley, 5.424% to 7/21/2033, FLR (SOFR - 1 day + 1.88%) to 7/21/2034 | | | 59,000 | 59,878 |
| UBS Group AG, 4.375% to 2/10/2031, FLR (CMT - 1yr. + 3.313%) to 12/31/2164 (n) | | | 200,000 | 157,956 |
| Wells Fargo & Co., 3.35% to 3/02/2032, FLR (SOFR - 1 day + 1.5%) to 3/02/2033 | | | 429,000 | 374,695 |
| Wells Fargo & Co., 3.9% to 3/15/2026, FLR (CMT - 1yr. + 3.453%) to 12/31/2099 | | | 215,000 | 198,651 |
| | | | | $1,993,444 |
| Medical & Health Technology & Services – 2.0% |
| Alcon Finance Corp., 5.75%, 12/06/2052 (n) | | $ | 200,000 | $ 215,013 |
| ProMedica Toledo Hospital, “B”, 5.325%, 11/15/2028 | | | 239,000 | 218,984 |
| ProMedica Toledo Hospital, “B”, AGM, 5.75%, 11/15/2038 | | | 89,000 | 88,402 |
| Tower Health, 4.451%, 2/01/2050 | | | 270,000 | 127,575 |
| | | | | $649,974 |
| Metals & Mining – 0.2% |
| Glencore Funding LLC, 2.85%, 4/27/2031 (n) | | $ | 88,000 | $ 75,882 |
| Midstream – 1.6% |
| Enbridge, Inc., 3.125%, 11/15/2029 | | $ | 150,000 | $ 136,833 |
| Enbridge, Inc., 2.5%, 8/01/2033 | | | 170,000 | 139,215 |
| Plains All American Pipeline LP, 3.8%, 9/15/2030 | | | 135,000 | 124,226 |
| Sabine Pass Liquefaction LLC, 4.5%, 5/15/2030 | | | 53,000 | 51,795 |
| Targa Resources Corp., 4.95%, 4/15/2052 | | | 82,000 | 71,938 |
| | | | | $524,007 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Mortgage-Backed – 0.1% | |
| Fannie Mae, 6.5%, 4/01/2032 | | $ | 7,145 | $ 7,404 |
| Fannie Mae, 3%, 2/25/2033 (i) | | | 27,773 | 2,334 |
| Fannie Mae, 5.5%, 9/01/2034 | | | 2,516 | 2,590 |
| | | | | $12,328 |
| Municipals – 2.3% |
| Bridgeview, IL, Stadium and Redevelopment Projects, Taxable, AAC, 5.14%, 12/01/2036 | | $ | 195,000 | $ 174,665 |
| Escambia County, FL, Health Facilities Authority Rev., Taxable (Baptist Health Care Corp.), “B”, AGM, 3.607%, 8/15/2040 | | | 270,000 | 217,249 |
| Port Beaumont, TX, Industrial Development Authority Facility Rev., Taxable (Jefferson Gulf Coast Energy Project), “B”, 4.1%, 1/01/2028 (n) | | | 245,000 | 203,676 |
| Puerto Rico Electric Power Authority Rev., “A”, 5%, 7/01/2042 (a)(d) | | | 5,000 | 1,300 |
| Puerto Rico Electric Power Authority Rev., “ZZ”, 5%, 7/01/2018 (a)(d) | | | 75,000 | 19,500 |
| Puerto Rico Sales Tax Financing Corp., Restructured Sales Tax Rev., Capital Appreciation, Taxable, “2019A-1”, 4.55%, 7/01/2040 | | | 174,000 | 139,599 |
| | | | | $755,989 |
| Other Banks & Diversified Financials – 1.4% |
| Ally Financial, Inc., 6.7%, 2/14/2033 | | $ | 183,000 | $ 183,216 |
| Discover Financial Services, 6.7%, 11/29/2032 | | | 161,000 | 168,654 |
| Macquarie Group Ltd., 4.442% to 6/21/2032, FLR (SOFR - 1 day + 2.405%) to 6/21/2033 (n) | | | 104,000 | 94,893 |
| | | | | $446,763 |
| Real Estate - Apartment – 0.2% |
| Mid-America Apartments LP, 2.75%, 3/15/2030 | | $ | 82,000 | $ 71,739 |
| Real Estate - Office – 0.5% |
| Boston Properties LP, REIT, 2.55%, 4/01/2032 | | $ | 209,000 | $ 166,379 |
| Retailers – 0.3% |
| Alimentation Couche-Tard, Inc., 2.95%, 1/25/2030 (n) | | $ | 65,000 | $ 58,184 |
| Nordstrom, Inc., 2.3%, 4/08/2024 | | | 51,000 | 50,304 |
| | | | | $108,488 |
| Specialty Stores – 0.7% |
| DICK'S Sporting Goods, 3.15%, 1/15/2032 | | $ | 274,000 | $ 233,414 |
| Telecommunications - Wireless – 0.9% |
| Cellnex Finance Co. S.A., 3.875%, 7/07/2041 (n) | | $ | 200,000 | $ 154,914 |
| Rogers Communications, Inc., 4.35%, 5/01/2049 | | | 107,000 | 90,575 |
| Rogers Communications, Inc., 4.55%, 3/15/2052 | | | 58,000 | 50,581 |
| | | | | $296,070 |
| Tobacco – 1.2% |
| B.A.T. Capital Corp., 3.215%, 9/06/2026 | | $ | 231,000 | $ 220,928 |
| B.A.T. Capital Corp., 6.343%, 8/02/2030 | | | 18,000 | 18,898 |
| Philip Morris International, Inc., 5.75%, 11/17/2032 | | | 146,000 | 153,221 |
| | | | | $393,047 |
| U.S. Government Agencies and Equivalents – 0.0% |
| Small Business Administration, 4.77%, 4/01/2024 | | $ | 829 | $ 825 |
| Small Business Administration, 4.99%, 9/01/2024 | | | 1,047 | 1,039 |
| Small Business Administration, 4.86%, 1/01/2025 | | | 2,028 | 2,011 |
| Small Business Administration, 4.625%, 2/01/2025 | | | 3,475 | 3,436 |
| Small Business Administration, 5.11%, 8/01/2025 | | | 2,906 | 2,879 |
| | | | | $10,190 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| U.S. Treasury Obligations – 41.3% |
| U.S. Treasury Bonds, 1.375%, 11/15/2040 | | $ | 1,000,000 | $ 663,477 |
| U.S. Treasury Bonds, 2.375%, 2/15/2042 | | | 1,200,000 | 920,719 |
| U.S. Treasury Bonds, 4%, 11/15/2042 | | | 496,000 | 482,031 |
| U.S. Treasury Bonds, 4.375%, 8/15/2043 | | | 570,000 | 581,845 |
| U.S. Treasury Bonds, 2.25%, 2/15/2052 | | | 413,000 | 286,293 |
| U.S. Treasury Bonds, 4.125%, 8/15/2053 | | | 100,000 | 101,078 |
| U.S. Treasury Notes, 4.25%, 9/30/2024 | | | 620,000 | 616,827 |
| U.S. Treasury Notes, 3.875%, 3/31/2025 | | | 300,000 | 297,363 |
| U.S. Treasury Notes, 4.75%, 7/31/2025 | | | 600,000 | 602,719 |
| U.S. Treasury Notes, 5%, 8/31/2025 | | | 300,000 | 302,766 |
| U.S. Treasury Notes, 0.875%, 6/30/2026 (f) | | | 2,650,000 | 2,450,525 |
| U.S. Treasury Notes, 2.5%, 3/31/2027 | | | 2,807,000 | 2,682,768 |
| U.S. Treasury Notes, 3.875%, 12/31/2027 | | | 886,000 | 884,547 |
| U.S. Treasury Notes, 4%, 2/29/2028 | | | 325,000 | 326,066 |
| U.S. Treasury Notes, 4.125%, 7/31/2028 | | | 2,220,000 | 2,242,894 |
| | | | | $13,441,918 |
| Utilities - Electric Power – 1.7% |
| American Electric Power Co., Inc., 5.95%, 11/01/2032 | | $ | 98,000 | $ 104,599 |
| Enel Finance International N.V., 7.5%, 10/14/2032 (n) | | | 200,000 | 228,315 |
| Jersey Central Power & Light Co., 2.75%, 3/01/2032 (n) | | | 34,000 | 28,695 |
| Pacific Gas & Electric Co., 3.5%, 8/01/2050 | | | 250,000 | 172,594 |
| | | | | $534,203 |
| Total Bonds (Identified Cost, $31,647,316) | | $29,812,651 |
| Investment Companies (h) – 7.7% |
| Bond Funds – 6.6% |
| MFS High Yield Pooled Portfolio (v) | | | 259,675 | $ 2,147,514 |
| Money Market Funds – 1.1% | |
| MFS Institutional Money Market Portfolio, 5.42% (v) | | | 360,541 | $ 360,613 |
| Total Investment Companies (Identified Cost, $2,422,534) | $2,508,127 |
| Other Assets, Less Liabilities – 0.7% | | 240,009 |
| Net Assets – 100.0% | $32,560,787 |
| (a) | Non-income producing security. |
| (d) | In default. |
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts. |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $2,508,127 and $29,812,651, respectively. |
| (i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. |
| (n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $6,596,719, representing 20.3% of net assets. |
| (p) | Payment-in-kind (PIK) security for which interest income may be received in additional securities and/or cash. |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
| (z) | Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities: |
Portfolio of Investments – continued
| Restricted Securities | Acquisition
Date | Cost | Value |
| ReadyCap Commercial Mortgage Trust, 2021-FL7, “D”, FLR, 8.42% ((SOFR - 1mo. + 0.11448%) + 2.95%), 11/25/2036 | 11/12/21 | $120,000 | $109,597 |
| % of Net assets | | | 0.3% |
| The following abbreviations are used in this report and are defined: |
| AAC | Ambac Assurance Corp. |
| AGM | Assured Guaranty Municipal |
| CDO | Collateralized Debt Obligation |
| CLO | Collateralized Loan Obligation |
| CMT | Constant Maturity Treasury |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| NPFG | National Public Finance Guarantee Corp. |
| REIT | Real Estate Investment Trust |
| SOFR | Secured Overnight Financing Rate |
| Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below: |
| EUR | Euro |
| Derivative Contracts at 12/31/23 |
| Forward Foreign Currency Exchange Contracts |
Currency
Purchased | Currency
Sold | Counterparty | Settlement
Date | Unrealized
Appreciation
(Depreciation) |
| Liability Derivatives |
| USD | 86,145 | EUR | 81,101 | HSBC Bank | 1/19/2024 | $(3,443) |
| Futures Contracts |
| Description | Long/
Short | Currency | Contracts | Notional
Amount | Expiration
Date | Value/Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| Interest Rate Futures | | |
| U.S. Treasury Note 2 yr | Long | USD | 3 | $617,742 | March – 2024 | $6,338 |
| U.S. Treasury Ultra Bond 30 yr | Long | USD | 14 | 1,870,313 | March – 2024 | 178,862 |
| U.S. Treasury Ultra Note 10 yr | Long | USD | 10 | 1,180,156 | March – 2024 | 52,586 |
| | | | | | | $237,786 |
At December 31, 2023, the fund had liquid securities with an aggregate value of $129,462 to cover any collateral or margin obligations for certain derivative contracts.
See Notes to Financial Statements
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/23Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $31,647,316) | $29,812,651 |
| Investments in affiliated issuers, at value (identified cost, $2,422,534) | 2,508,127 |
| Receivables for | |
| Investments sold | 4,859 |
| Fund shares sold | 14,431 |
| Interest | 336,196 |
| Receivable from investment adviser | 107 |
| Other assets | 389 |
| Total assets | $32,676,760 |
| Liabilities | |
| Payables for | |
| Forward foreign currency exchange contracts | $3,443 |
| Net daily variation margin on open futures contracts | 7,952 |
| Investments purchased | 29 |
| Fund shares reacquired | 39,883 |
| Payable to affiliates | |
| Administrative services fee | 192 |
| Shareholder servicing costs | 7 |
| Distribution and/or service fees | 130 |
| Payable for independent Trustees' compensation | 112 |
| Payable for audit and tax fees | 46,070 |
| Accrued expenses and other liabilities | 18,155 |
| Total liabilities | $115,973 |
| Net assets | $32,560,787 |
| Net assets consist of | |
| Paid-in capital | $37,541,093 |
| Total distributable earnings (loss) | (4,980,306) |
| Net assets | $32,560,787 |
| Shares of beneficial interest outstanding | 3,893,415 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $27,815,280 | 3,322,789 | $8.37 |
| Service Class | 4,745,507 | 570,626 | 8.32 |
See Notes to Financial Statements
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/23 | |
| Net investment income (loss) | |
| Income | |
| Interest | $1,380,894 |
| Dividends from affiliated issuers | 183,111 |
| Other | 25 |
| Total investment income | $1,564,030 |
| Expenses | |
| Management fee | $155,194 |
| Distribution and/or service fees | 8,240 |
| Shareholder servicing costs | 2,047 |
| Administrative services fee | 17,500 |
| Independent Trustees' compensation | 3,090 |
| Custodian fee | 7,955 |
| Audit and tax fees | 86,409 |
| Legal fees | 402 |
| Miscellaneous | 19,696 |
| Total expenses | $300,533 |
| Reduction of expenses by investment adviser | (68,774) |
| Net expenses | $231,759 |
| Net investment income (loss) | $1,332,271 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $(646,882) |
| Affiliated issuers | (169,356) |
| Futures contracts | (342,545) |
| Forward foreign currency exchange contracts | (4,498) |
| Foreign currency | 155 |
| Net realized gain (loss) | $(1,163,126) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $1,632,860 |
| Affiliated issuers | 260,611 |
| Futures contracts | 264,383 |
| Forward foreign currency exchange contracts | 3,556 |
| Translation of assets and liabilities in foreign currencies | (5) |
| Net unrealized gain (loss) | $2,161,405 |
| Net realized and unrealized gain (loss) | $998,279 |
| Change in net assets from operations | $2,330,550 |
See Notes to Financial Statements
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/23 | 12/31/22 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $1,332,271 | $1,005,096 |
| Net realized gain (loss) | (1,163,126) | (2,463,388) |
| Net unrealized gain (loss) | 2,161,405 | (3,961,261) |
| Change in net assets from operations | $2,330,550 | $(5,419,553) |
| Total distributions to shareholders | $(1,132,495) | $(1,473,035) |
| Change in net assets from fund share transactions | $528,038 | $(3,982,593) |
| Total change in net assets | $1,726,093 | $(10,875,181) |
| Net assets | | |
| At beginning of period | 30,834,694 | 41,709,875 |
| At end of period | $32,560,787 | $30,834,694 |
See Notes to Financial Statements
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $8.08 | $9.81 | $10.51 | $9.98 | $9.26 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.35 | $0.26 | $0.23 | $0.29 | $0.33 |
| Net realized and unrealized gain (loss) | 0.25 | (1.59) | (0.17) | 0.63 | 0.74 |
| Total from investment operations | $0.60 | $(1.33) | $0.06 | $0.92 | $1.07 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.31) | $(0.31) | $(0.33) | $(0.39) | $(0.35) |
| From net realized gain | — | (0.09) | (0.43) | — | — |
| Total distributions declared to shareholders | $(0.31) | $(0.40) | $(0.76) | $(0.39) | $(0.35) |
| Net asset value, end of period (x) | $8.37 | $8.08 | $9.81 | $10.51 | $9.98 |
| Total return (%) (k)(r)(s)(x) | 7.59 | (13.71) | 0.47 | 9.35 | 11.60 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions (h) | 0.94 | 1.00 | 0.89 | 0.89 | 1.01 |
| Expenses after expense reductions (h) | 0.72 | 0.75 | 0.75 | 0.75 | 0.78 |
| Net investment income (loss) | 4.32 | 2.97 | 2.28 | 2.83 | 3.32 |
| Portfolio turnover | 49 | 58 | 72 | 112 | 104 |
| Net assets at end of period (000 omitted) | $27,815 | $28,129 | $36,163 | $41,438 | $38,670 |
| Service Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $8.03 | $9.72 | $10.43 | $9.90 | $9.19 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.33 | $0.22 | $0.21 | $0.26 | $0.30 |
| Net realized and unrealized gain (loss) | 0.25 | (1.55) | (0.19) | 0.63 | 0.74 |
| Total from investment operations | $0.58 | $(1.33) | $0.02 | $0.89 | $1.04 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.29) | $(0.27) | $(0.30) | $(0.36) | $(0.33) |
| From net realized gain | — | (0.09) | (0.43) | — | — |
| Total distributions declared to shareholders | $(0.29) | $(0.36) | $(0.73) | $(0.36) | $(0.33) |
| Net asset value, end of period (x) | $8.32 | $8.03 | $9.72 | $10.43 | $9.90 |
| Total return (%) (k)(r)(s)(x) | 7.36 | (13.85) | 0.10 | 9.11 | 11.29 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions (h) | 1.18 | 1.24 | 1.14 | 1.14 | 1.26 |
| Expenses after expense reductions (h) | 0.96 | 1.00 | 1.00 | 1.00 | 1.03 |
| Net investment income (loss) | 4.09 | 2.54 | 2.03 | 2.59 | 3.07 |
| Portfolio turnover | 49 | 58 | 72 | 112 | 104 |
| Net assets at end of period (000 omitted) | $4,746 | $2,705 | $5,547 | $5,825 | $6,371 |
See Notes to Financial Statements
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (h) | In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying affiliated funds in which the fund invests. Accordingly, the expense ratio for the fund reflects only those fees and expenses borne directly by the fund. Because the underlying affiliated funds have varied expense and fee levels and the fund may own different proportions of the underlying affiliated funds at different times, the amount of fees and expenses incurred indirectly by the fund will vary. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
Notes to Financial Statements
(1) Business and Organization
MFS Income Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in the MFS High Yield Pooled Portfolio (“High Yield Pooled Portfolio”). MFS does not receive a management fee from the High Yield Pooled Portfolio. The High Yield Pooled Portfolio’s investment objective is to seek total return with an emphasis on high current income, but also considering capital appreciation. The accounting policies of the High Yield Pooled Portfolio are outlined in its shareholder report, which is available without charge by calling 1-800-225-2606 and on the Securities and Exchange Commission (SEC) web site at http://www.sec.gov. The accounting policies detailed in the Significant Accounting Policies note cover both the fund and the High Yield Pooled Portfolio. For purposes of this policy disclosure, “fund” refers to both the fund and the High Yield Pooled Portfolio in which the fund invests. The High Yield Pooled Portfolio's shareholder report is not covered by this report. The fund and the High Yield Pooled Portfolio invest in high-yield securities rated below investment grade. Investments in below investment grade quality securities can involve a substantially greater risk of default or can already be in default, and their values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments. The fund and the High Yield Pooled Portfolio invest in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — The investments of the fund and the High Yield Pooled Portfolio are valued as described below.
Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities and equity securities sold short, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Equity securities sold short, for which there were no sales reported that day, are generally valued at the last quoted daily ask quotation on their primary market or exchange as provided by a third-party pricing service. Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service.
Notes to Financial Statements - continued
Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. For put options, the position may be valued at the last daily ask quotation if there are no trades reported during the day. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Swap agreements are generally valued using valuations provided by a third-party pricing service, which for cleared swaps includes an evaluation of any trading activity at the clearinghouses. Open-end investment companies are generally valued at net asset value per share. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments, such as futures contracts and forward foreign currency exchange contracts. The following is a summary of the levels used as of December 31, 2023 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | $— | $13,452,108 | $— | $13,452,108 |
| Non - U.S. Sovereign Debt | — | 773,419 | — | 773,419 |
| Municipal Bonds | — | 755,989 | — | 755,989 |
| U.S. Corporate Bonds | — | 6,532,935 | — | 6,532,935 |
| Residential Mortgage-Backed Securities | — | 12,328 | — | 12,328 |
| Commercial Mortgage-Backed Securities | — | 954,223 | — | 954,223 |
| Asset-Backed Securities (including CDOs) | — | 3,610,485 | — | 3,610,485 |
| Foreign Bonds | — | 3,721,164 | — | 3,721,164 |
| Mutual Funds | 2,508,127 | — | — | 2,508,127 |
| Total | $2,508,127 | $29,812,651 | $— | $32,320,778 |
| Other Financial Instruments | | | | |
| Futures Contracts – Assets | $237,786 | $— | $— | $237,786 |
| Forward Foreign Currency Exchange Contracts – Liabilities | — | (3,443) | — | (3,443) |
Notes to Financial Statements - continued
For further information regarding security characteristics, see the Portfolio of Investments. Please refer to the High Yield Pooled Portfolio's shareholder report for further information regarding the levels used in valuing its assets and liabilities.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives — The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were futures contracts and forward foreign currency exchange contracts. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily fluctuation in the price for that type of future exceeds the daily limit set by the exchange. The fund's period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at December 31, 2023 as reported in the Statement of Assets and Liabilities:
| | | Fair Value (a) |
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Interest Rate | Futures Contracts | $237,786 | $— |
| Foreign Exchange | Forward Foreign Currency Exchange Contracts | — | (3,443) |
| Total | | $237,786 | $(3,443) |
(a) Values presented in this table for futures contracts correspond to the values reported in the Portfolio of Investments. Only the current day net variation margin for futures contracts is reported separately within the Statement of Assets and Liabilities.
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended December 31, 2023 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts |
| Interest Rate | $(342,545) | $— |
| Foreign Exchange | — | (4,498) |
| Total | $(342,545) | $(4,498) |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended December 31, 2023 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts |
| Interest Rate | $264,383 | $— |
| Foreign Exchange | — | 3,556 |
| Total | $264,383 | $3,556 |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the
Notes to Financial Statements - continued
right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a credit support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
Futures Contracts — The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Forward Foreign Currency Exchange Contracts — The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on forward foreign currency exchange contracts.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Notes to Financial Statements - continued
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Interest payments received in additional securities are recorded on the ex-interest date in an amount equal to the value of the security on such date.
Debt obligations may be placed on non-accrual status or set to accrue at a rate of interest less than the contractual coupon when the collection of all or a portion of interest has become doubtful. Interest income for those debt obligations may be further reduced by the write-off of the related interest receivables when deemed uncollectible.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Investment transactions are recorded on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
To mitigate the counterparty credit risk on TBA transactions, mortgage dollar rolls, and other types of forward settling mortgage-backed and asset-backed security transactions, the fund whenever possible enters into a Master Securities Forward Transaction Agreement (“MSFTA”) on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The MSFTA gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the MSFTA, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the MSFTA could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
For mortgage-backed and asset-backed securities traded under a MSFTA, the collateral and margining requirements are contract specific. Collateral amounts across all transactions traded under such agreement are netted and an amount is posted from one party to the other to collateralize such obligations. Cash that has been pledged to cover the fund's collateral or margin obligations under a MSFTA, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments.
Legal fees and other related expenses incurred to preserve and protect the value of a security owned are added to the cost of the security; other legal fees are expensed. Capital infusions made directly to the security issuer, which are generally non-recurring, incurred to protect or enhance the value of high-yield debt securities, are reported as additions to the cost basis of the security. Costs that are incurred to negotiate the terms or conditions of capital infusions or that are expected to result in a plan of reorganization are reported as realized losses. Ongoing costs incurred to protect or enhance an investment, or costs incurred to pursue other claims or legal actions, are expensed.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to defaulted bonds, amortization of premium and accretion of discount of debt securities, wash sale loss deferrals, and derivative transactions.
Notes to Financial Statements - continued
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/23 | Year ended
12/31/22 |
| Ordinary income (including any short-term capital gains) | $1,132,495 | $1,147,664 |
| Long-term capital gains | — | 325,371 |
| Total distributions | $1,132,495 | $1,473,035 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/23 | |
| Cost of investments | $35,115,143 |
| Gross appreciation | 755,082 |
| Gross depreciation | (3,315,104) |
| Net unrealized appreciation (depreciation) | $(2,560,022) |
| Undistributed ordinary income | 1,339,189 |
| Capital loss carryforwards | (3,759,572) |
| Other temporary differences | 99 |
| Total distributable earnings (loss) | $(4,980,306) |
As of December 31, 2023, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(1,118,735) |
| Long-Term | (2,640,837) |
| Total | $(3,759,572) |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/23 | | Year
ended
12/31/22 |
| Initial Class | $1,008,877 | | $1,353,079 |
| Service Class | 123,618 | | 119,956 |
| Total | $1,132,495 | | $1,473,035 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.50% |
| In excess of $1 billion | 0.45% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this management fee reduction amounted to $3,971, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.49% of the fund's average daily net assets.
Notes to Financial Statements - continued
For the period from January 1, 2023 through July 31, 2023, the investment adviser had agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses (such as fees and expenses associated with investments in investment companies and other similar investment vehicles), such that total annual operating expenses did not exceed 0.75% of average daily net assets for the Initial Class shares and 1.00% of average daily net assets for the Service Class shares. This written agreement terminated on July 31, 2023. For the period from January 1, 2023 through July 31, 2023, this reduction amounted to $43,918, which is included in the reduction of total expenses in the Statement of Operations. Effective August 1, 2023, the investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses (such as fees and expenses associated with investments in investment companies and other similar investment vehicles), such that total annual operating expenses do not exceed 0.67% of average daily net assets for the Initial Class shares and 0.92% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2025. For the period from August 1, 2023 through December 31, 2023, this reduction amounted to $20,885, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares as well as shareholder servicing and account maintenance activities. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. The distribution and/or service fees are computed daily and paid monthly.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2023, the fee was $1,432, which equated to 0.0046% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2023, these costs amounted to $615.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is computed daily and paid monthly. The administrative services fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.0564% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The fund invests in the MFS High Yield Pooled Portfolio, which is a mutual fund advised by MFS that does not pay management fees to MFS and does not pay distribution and/or service fees to MFD, but does incur investment and operating costs. The fund invests in MFS High Yield Pooled Portfolio to gain exposure to high income debt instruments, rather than investing in high income debt instruments directly. Income earned on this investment is included in “Dividends from affiliated issuers” in the Statement of Operations.
Notes to Financial Statements - continued
(4) Portfolio Securities
For the year ended December 31, 2023, purchases and sales of investments, other than short-term obligations, were as follows:
| | Purchases | Sales |
| U.S. Government securities | $11,844,690 | $7,006,550 |
| Non-U.S. Government securities | 3,507,515 | 8,090,834 |
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 310,391 | $2,539,029 | | 190,052 | $1,645,984 |
| Service Class | 297,226 | 2,390,922 | | 22,625 | 194,519 |
| | 607,617 | $4,929,951 | | 212,677 | $1,840,503 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 127,223 | $1,008,877 | | 162,630 | $1,353,079 |
| Service Class | 15,668 | 123,618 | | 14,505 | 119,956 |
| | 142,891 | $1,132,495 | | 177,135 | $1,473,035 |
| Shares reacquired | | | | | |
| Initial Class | (596,860) | $(4,893,899) | | (558,344) | $(4,896,032) |
| Service Class | (79,299) | (640,509) | | (270,642) | (2,400,099) |
| | (676,159) | $(5,534,408) | | (828,986) | $(7,296,131) |
| Net change | | | | | |
| Initial Class | (159,246) | $(1,345,993) | | (205,662) | $(1,896,969) |
| Service Class | 233,595 | 1,874,031 | | (233,512) | (2,085,624) |
| | 74,349 | $528,038 | | (439,174) | $(3,982,593) |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 14, 2024 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2023, the fund’s commitment fee and interest expense were $157 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
Notes to Financial Statements - continued
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS High Yield Pooled Portfolio | $1,563,069 | $2,282,803 | $1,789,419 | $(169,571) | $260,632 | $2,147,514 |
| MFS Institutional Money Market Portfolio | 212,816 | 16,024,773 | 15,877,170 | 215 | (21) | 360,613 |
| | $1,775,885 | $18,307,576 | $17,666,589 | $(169,356) | $260,611 | $2,508,127 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS High Yield Pooled Portfolio | $158,224 | $— |
| MFS Institutional Money Market Portfolio | 24,887 | — |
| | $183,111 | $— |
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Income Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Income Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 2024
We have served as the auditor of one or more of the MFS investment companies since 1924.
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2024, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 57) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 69) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 72) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 69) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 68) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 68) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 62) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 67) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 67) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 66) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 55) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
John W. Clark, Jr. (k)
(age 56) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 55) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 56) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 47) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022) |
Amanda S. Mooradian (k)
(age 44) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 53) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 53) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
James O. Yost (k)
(age 63) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Caroselli, Jones and Otis are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
Trustees and Officers - continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Congress Street, Suite 1
Boston, MA 02114-2016 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Neeraj Arora
Philipp Burgener
David Cole
Alexander Mackey
Joshua Marston
Michael Skatrud | |
Board Review of Investment Advisory Agreement
MFS Income Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2023 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2022 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2022, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 2nd quintile for the one-year period and the 1st quintile for the three-year period ended December 31, 2022 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate was lower than the Broadridge expense group median and the Fund’s total expense ratio was higher than the Broadridge expense group median. The Trustees also noted that MFS has agreed to further reduce the expense limitation for the Fund effective August 1, 2023, which may not be changed without the Trustees’ approval.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2023.
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2023
MFS® Technology Portfolio
MFS® Variable Insurance Trust II
MFS® Technology Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
Portfolio structure
Top ten holdings
| Microsoft Corp. | 12.7% |
| Alphabet, Inc., “A” | 9.0% |
| NVIDIA Corp. | 7.9% |
| Meta Platforms, Inc., “A” | 6.9% |
| Broadcom, Inc. | 5.6% |
| ServiceNow, Inc. | 3.8% |
| Salesforce, Inc. | 3.2% |
| Accenture PLC, “A” | 3.0% |
| Intuit, Inc. | 2.8% |
| Palo Alto Networks, Inc. | 2.3% |
Top five industries
| Computer Software | 28.4% |
| Electronics | 24.3% |
| Internet | 18.8% |
| Computer Software - Systems | 12.4% |
| Business Services | 7.7% |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of December 31, 2023.
The portfolio is actively managed and current holdings may be different.
Management Review
Summary of Results
For the twelve months ended December 31, 2023, Initial Class shares of the MFS Technology Portfolio (fund) provided a total return of 54.23%, while Service Class shares of the fund provided a total return of 53.82%. These compare with a return of 26.29% over the same period for the fund’s benchmark, the Standard & Poor's 500 Stock Index, and a return of 61.13% for the fund’s other benchmark, the Standard & Poor's North American Technology Sector Index.
Market Environment
During the reporting period, central banks around the world had to combat the strongest inflationary pressures in four decades, fueled by the global fiscal response to the pandemic, disrupted supply chains and the dislocations to energy markets stemming from the war in Ukraine. Interest rates rose substantially, but the effects of a tighter monetary policy may not have been fully experienced yet, given that monetary policy works with long and variable lags. Strains resulting from the abrupt tightening of monetary policy began to affect some parts of the economy, most acutely among small and regional US banks, which suffered from deposit flight as depositors sought higher yields on their savings. Additionally, activity in the US housing sector has slowed as a result of higher mortgage rates. China’s abandonment of its Zero-COVID policy ushered in a brief uptick in economic activity in the world’s second-largest economy in early 2023, although its momentum soon stalled as the focus turned to the country’s highly indebted property development sector. In developed markets, consumer demand for services remained stronger than the demand for goods.
Early on, policymakers found themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, central banks focused on controlling price pressures while also confronting increasing financial stability concerns. Central banks had to juggle achieving their inflation mandates while using macroprudential tools (financial policies aimed at safeguarding the stability of the financial system) to keep banking systems liquid, a potentially difficult balancing act, and one that suggested that we may be nearing a peak in policy rates. As inflationary pressures eased toward the end of the period, financial conditions loosened in anticipation of easier monetary policy, boosting the market’s appetite for risk. Rapid advancements in artificial intelligence were a focus for investors.
Normalizing supply chains, low levels of unemployment across developed markets and signs that inflation levels have peaked were supportive factors for the macroeconomic backdrop.
Detractors from Performance
The fund’s exposure to both the capital markets and insurance industries, for which the benchmark has no exposure, detracted from performance relative to the Standard & Poor’s North American Technology Sector Index. Within the capital markets industry, holdings of financial services provider Charles Schwab(b)(h) held back relative returns. The share price of Charles Schwab fell sharply at the beginning of the calendar year, along with the regional bank failures, before recovering some of its lost ground later in year. Additionally, clients withdrew cash deposits to pursue higher interest rates, which further hurt the stock price. Within the insurance industry, the fund’s holdings of insurance services provider Arthur J. Gallagher & Co further weakened relative performance.
An overweight position in the financial services industry also detracted from relative returns led by the fund’s overweight positions in debit and credit transaction processing company Mastercard and payment processing and information management solutions provider WEX. Despite delivering positive performance in absolute terms, the share price of Mastercard lagged the fund’s benchmark, during an exceptionally strong period of performance for technology stocks, subsequently hurting relative returns.
Stock selection in the interactive media & services industry also hampered relative performance. Within this industry, the fund’s underweight position in social networking service provider Meta Platforms held back relative returns. The stock price of Meta Platforms rose as the company reported stronger-than-anticipated revenue growth and very robust user engagement across its applications. Additionally, implementation of cost controls such as job restructuring and property consolidation, a lower tax rate and an improved macroeconomic environment further supported the company’s overall results.
Stocks in other industries that detracted from relative returns included the fund’s underweight position in computer graphics processor maker NVIDIA and its holdings of equity put option on exchange-traded fund Invesco QQQ Trust(b)(h), technology services provider Endava(b)(h), and risk management and human capital consulting services provider Aon(b).
The fund’s cash and/or cash equivalents position during the period was another detractor from relative performance. Under normal market conditions, the fund strives to be fully invested and generally holds cash to buy new holdings and to provide liquidity. In a period when equity markets rose, as measured by the fund’s benchmark, holding cash hurt performance versus the benchmark, which has no cash position.
Management Review - continued
Contributors to Performance
The fund’s underweight position and stock selection in both the communications equipment and electronic equipment, instruments & components industries contributed to relative performance. Within the communications equipment industry, not owning shares of network equipment company Cisco Systems benefited relative returns. The share price of Cisco Systems suffered from a softer-than-anticipated outlook led by a decline in order growth and elevated inventory levels. There were no individual stocks within the electronic equipment, instruments & components industry, either in the fund or in the benchmark, that were among the fund's top relative contributors over the reporting period.
An underweight position in the technology hardware, storage & peripherals industry also aided relative results led by the fund’s underweight position in computer and personal electronics maker Apple(h). The share price of Apple performed strongly during the period, but lagged the fund’s benchmark, which positively contributed to the fund's relative results. Management reported that softer sales of iPhones driven by a weakened consumer demand environment and foreign exchange headwinds appeared to have weighed on investors’ expectations.
Elsewhere, not owning shares of semiconductor company Texas Instruments, human capital management services provider Automatic Data Processing and diversified technology products and services company International Business Machines (IBM), and the fund’s underweight positions in digital payment services provider Visa(h) and electronic equipment and circuit company Analog Devices, supported relative returns. The share price of Texas Instruments lagged the broader technology sector after the company brought down forward earnings guidance owing to weakness across its end markets. This, together with market share loss and higher capital expenses, led to the stock’s underperformance over the reporting period. Additionally, the fund’s overweight positions in enterprise cloud computing solutions provider ServiceNow, network security solutions provider Palo Alto Networks and software company Adobe Systems further helped relative results.
Respectfully,
Portfolio Manager
Reinier Dobbelmann
Note to Shareholders: Effective September 29, 2023, Matthew Sabel is no longer a Portfolio Manager of the fund.
| (b) | Security is not a benchmark constituent. |
| (h) | Security was not held in the portfolio at period end. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
Performance Summary Through 12/31/23
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/23
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 6/16/2000 | 54.23% | 17.65% | 15.56% |
| Service Class | 8/24/2001 | 53.82% | 17.36% | 15.28% |
Comparative benchmark(s)
| Standard & Poor's 500 Stock Index (f) | 26.29% | 15.69% | 12.03% |
| Standard & Poor's North American Technology Sector Index (f) | 61.13% | 22.22% | 18.72% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Standard & Poor's 500 Stock Index(g) – a market capitalization-weighted index of 500 widely held equity securities, designed to measure broad U.S. equity performance.
Standard & Poor's North American Technology Sector Index(g) - a modified market capitalization-weighted index that measures the performance of selected technology stocks.
It is not possible to invest directly in an index.
| (g) | “Standard & Poor's®” and “S&P®” are registered trademarks of Standard & Poor's Financial Services LLC (“S&P”) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and have been licensed for use by S&P Dow Jones Indices LLC and sublicensed for certain purposes by MFS. The S&P 500® is a product of S&P Dow Jones Indices LLC, and has been licensed for use by MFS. MFS's product(s) is not sponsored, endorsed, sold, or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or their respective affiliates, and neither S&P Dow Jones Indices LLC, Dow Jones, S&P, nor their respective affiliates make any representation regarding the advisability of investing in such product(s). |
Performance Summary – continued
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2023 through December 31, 2023
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2023 through December 31, 2023.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/23 | Ending
Account Value
12/31/23 | Expenses
Paid During
Period (p)
7/01/23-12/31/23 |
| Initial Class | Actual | 0.82% | $1,000.00 | $1,169.94 | $4.48 |
| | Hypothetical (h) | 0.82% | $1,000.00 | $1,021.07 | $4.18 |
| Service Class | Actual | 1.07% | $1,000.00 | $1,168.54 | $5.85 |
| | Hypothetical (h) | 1.07% | $1,000.00 | $1,019.81 | $5.45 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
Portfolio of Investments − 12/31/23
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 99.7% |
| Business Services – 7.7% | |
| Accenture PLC, “A” | | 11,725 | $ 4,114,420 |
| Factset Research Systems, Inc. | | 2,057 | 981,292 |
| FleetCor Technologies, Inc. (a) | | 2,552 | 721,221 |
| MSCI, Inc. | | 1,557 | 880,717 |
| Tyler Technologies, Inc. (a) | | 2,497 | 1,044,045 |
| Verisk Analytics, Inc., “A” | | 8,270 | 1,975,372 |
| WEX, Inc. (a) | | 4,791 | 932,089 |
| | | | | $10,649,156 |
| Computer Software – 28.4% | |
| Adobe Systems, Inc. (a) | | 2,273 | $ 1,356,072 |
| Cadence Design Systems, Inc. (a) | | 10,382 | 2,827,745 |
| Dun & Bradstreet Holdings, Inc. | | 49,006 | 573,370 |
| Intuit, Inc. | | 6,101 | 3,813,308 |
| Microsoft Corp. (s) | | 46,410 | 17,452,016 |
| Mobileye Global, Inc., “A” (a) | | 19,832 | 859,122 |
| Oracle Corp. | | 23,543 | 2,482,139 |
| Palo Alto Networks, Inc. (a) | | 10,843 | 3,197,384 |
| Salesforce, Inc. (a) | | 16,956 | 4,461,802 |
| Synopsys, Inc. (a) | | 2,764 | 1,423,211 |
| Topicus.com, Inc. (a) | | 8,515 | 573,472 |
| | | | | $39,019,641 |
| Computer Software - Systems – 12.4% | |
| Arista Networks, Inc. (a) | | 3,787 | $ 891,876 |
| Constellation Software, Inc. | | 722 | 1,790,095 |
| Descartes Systems Group, Inc. (a) | | 16,907 | 1,420,517 |
| Hitachi Ltd. | | 38,100 | 2,748,064 |
| HubSpot, Inc. (a) | | 3,486 | 2,023,762 |
| ServiceNow, Inc. (a) | | 7,472 | 5,278,893 |
| Shopify, Inc. (a) | | 37,085 | 2,888,922 |
| | | | | $17,042,129 |
| Consumer Services – 1.9% | |
| Booking Holdings, Inc. (a) | | 720 | $ 2,553,999 |
| Electrical Equipment – 1.4% | |
| Amphenol Corp., “A” | | 19,376 | $ 1,920,743 |
| Electronics – 24.3% | |
| Advanced Micro Devices (a)(s) | | 21,649 | $ 3,191,280 |
| Analog Devices, Inc. | | 3,594 | 713,625 |
| ASML Holding N.V., ADR | | 483 | 365,592 |
| Broadcom, Inc. | | 6,872 | 7,670,870 |
| Intel Corp. | | 57,217 | 2,875,154 |
| KLA Corp. | | 3,366 | 1,956,656 |
| Lam Research Corp. | | 2,212 | 1,732,571 |
| Marvell Technology, Inc. | | 46,926 | 2,830,107 |
| NVIDIA Corp. (s) | | 22,052 | 10,920,592 |
| Onto Innovation, Inc. (a) | | 2,949 | 450,902 |
| Taiwan Semiconductor Manufacturing Co. Ltd. | | 37,000 | 714,912 |
| | | | | $33,422,261 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Insurance – 1.6% | |
| Aon PLC | | 2,191 | $ 637,625 |
| Arthur J. Gallagher & Co. | | 7,005 | 1,575,284 |
| | | | | $2,212,909 |
| Internet – 18.8% | |
| Alphabet, Inc., “A” (a)(s) | | 88,494 | $ 12,361,727 |
| Gartner, Inc. (a) | | 5,172 | 2,333,141 |
| Meta Platforms, Inc., “A” (a) | | 26,684 | 9,445,068 |
| Pinterest, Inc. (a) | | 44,771 | 1,658,318 |
| | | | | $25,798,254 |
| Leisure & Toys – 1.0% | |
| Take-Two Interactive Software, Inc. (a) | | 8,883 | $ 1,429,719 |
| Other Banks & Diversified Financials – 1.1% | |
| Mastercard, Inc., “A” | | 1,450 | $ 618,439 |
| S&P Global, Inc. | | 2,084 | 918,044 |
| | | | | $1,536,483 |
| Specialty Stores – 1.1% | |
| Amazon.com, Inc. (a)(s) | | 9,999 | $ 1,519,248 |
| Total Common Stocks (Identified Cost, $82,301,752) | | $137,104,542 |
| | Strike
Price | First
Exercise | | |
| Warrants – 0.0% | | | | |
| Computer Software - Systems – 0.0% |
Constellation Software, Inc. (CAD 100 principal amount of Series 2 Debentures for 1 warrant, Expiration 3/31/40) (a)
(Identified Cost, $0) | CAD 11.5 | N/A | 849 | $ 0 |
| | | | | |
| Investment Companies (h) – 0.4% |
| Money Market Funds – 0.4% | |
| MFS Institutional Money Market Portfolio, 5.42% (v) (Identified Cost, $558,949) | | | 558,909 | $ 559,020 |
| Other Assets, Less Liabilities – (0.1)% | | (112,123) |
| Net Assets – 100.0% | $137,551,439 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $559,020 and $137,104,542, respectively. | | | |
| (s) | Security or a portion of the security was pledged to cover collateral requirements for certain derivative transactions. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
Portfolio of Investments – continued
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below: |
| CAD | Canadian Dollar |
At December 31, 2023, the fund had cash collateral of $23,604 and other liquid securities with an aggregate value of $588,970 to cover any collateral or margin obligations for certain derivative contracts. Restricted cash and/or deposits with brokers in the Statement of Assets and Liabilities are comprised of cash collateral.
See Notes to Financial Statements
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/23Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $82,301,752) | $137,104,542 |
| Investments in affiliated issuers, at value (identified cost, $558,949) | 559,020 |
| Cash | 10 |
| Foreign currency, at value (identified cost, $6) | 6 |
| Deposits with brokers for | |
| Exchange-traded options | 23,604 |
| Receivables for | |
| Fund shares sold | 57,300 |
| Interest and dividends | 12,172 |
| Other assets | 1,162 |
| Total assets | $137,757,816 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $146,496 |
| Payable to affiliates | |
| Investment adviser | 11,153 |
| Administrative services fee | 308 |
| Shareholder servicing costs | 8 |
| Distribution and/or service fees | 3,104 |
| Payable for audit and tax fees | 29,607 |
| Accrued expenses and other liabilities | 15,701 |
| Total liabilities | $206,377 |
| Net assets | $137,551,439 |
| Net assets consist of | |
| Paid-in capital | $81,575,361 |
| Total distributable earnings (loss) | 55,976,078 |
| Net assets | $137,551,439 |
| Shares of beneficial interest outstanding | 4,840,659 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $24,699,617 | 811,569 | $30.43 |
| Service Class | 112,851,822 | 4,029,090 | 28.01 |
See Notes to Financial Statements
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/23 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $623,814 |
| Dividends from affiliated issuers | 164,985 |
| Other | 2,504 |
| Income on securities loaned | 916 |
| Foreign taxes withheld | (8,160) |
| Total investment income | $784,059 |
| Expenses | |
| Management fee | $891,501 |
| Distribution and/or service fees | 245,124 |
| Shareholder servicing costs | 2,058 |
| Administrative services fee | 27,374 |
| Independent Trustees' compensation | 3,750 |
| Custodian fee | 11,976 |
| Shareholder communications | 1,571 |
| Audit and tax fees | 59,940 |
| Legal fees | 661 |
| Miscellaneous | 20,312 |
| Total expenses | $1,264,267 |
| Reduction of expenses by investment adviser | (15,167) |
| Net expenses | $1,249,100 |
| Net investment income (loss) | $(465,041) |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $6,694,304 |
| Affiliated issuers | 17 |
| Foreign currency | (5,092) |
| Net realized gain (loss) | $6,689,229 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $44,507,225 |
| Affiliated issuers | (1,327) |
| Translation of assets and liabilities in foreign currencies | 55 |
| Net unrealized gain (loss) | $44,505,953 |
| Net realized and unrealized gain (loss) | $51,195,182 |
| Change in net assets from operations | $50,730,141 |
See Notes to Financial Statements
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/23 | 12/31/22 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $(465,041) | $(612,706) |
| Net realized gain (loss) | 6,689,229 | (5,055,930) |
| Net unrealized gain (loss) | 44,505,953 | (44,241,783) |
| Change in net assets from operations | $50,730,141 | $(49,910,419) |
| Total distributions to shareholders | $— | $(10,135,043) |
| Change in net assets from fund share transactions | $(11,239,695) | $23,742,044 |
| Total change in net assets | $39,490,446 | $(36,303,418) |
| Net assets | | |
| At beginning of period | 98,060,993 | 134,364,411 |
| At end of period | $137,551,439 | $98,060,993 |
See Notes to Financial Statements
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $19.73 | $33.58 | $31.10 | $21.18 | $17.34 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $(0.05) | $(0.09) | $(0.21) | $(0.14) | $(0.09) |
| Net realized and unrealized gain (loss) | 10.75 | (11.54) | 4.47 | 10.06 | 6.16 |
| Total from investment operations | $10.70 | $(11.63) | $4.26 | $9.92 | $6.07 |
| Less distributions declared to shareholders | | | | | |
| From net realized gain | $— | $(2.22) | $(1.78) | $— | $(2.23) |
| Net asset value, end of period (x) | $30.43 | $19.73 | $33.58 | $31.10 | $21.18 |
| Total return (%) (k)(r)(s)(x) | 54.23 | (35.70) | 13.68 | 46.84 | 36.16 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.86 | 0.89 | 0.88 | 0.94 | 0.97 |
| Expenses after expense reductions | 0.84 | 0.88 | 0.87 | 0.93 | 0.96 |
| Net investment income (loss) | (0.18) | (0.37) | (0.62) | (0.55) | (0.44) |
| Portfolio turnover | 43 | 28 | 44 | 57 | 33 |
| Net assets at end of period (000 omitted) | $24,700 | $17,106 | $28,740 | $28,768 | $19,336 |
| Supplemental Ratios (%): | | | | | |
| Ratios of expenses to average net assets after expense reductions and excluding interest expense and fees | N/A | N/A | 0.86 | 0.91 | 0.93 |
See Notes to Financial Statements
Financial Highlights - continued
| Service Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $18.21 | $31.29 | $29.15 | $19.91 | $16.44 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $(0.10) | $(0.14) | $(0.27) | $(0.19) | $(0.13) |
| Net realized and unrealized gain (loss) | 9.90 | (10.72) | 4.19 | 9.43 | 5.83 |
| Total from investment operations | $9.80 | $(10.86) | $3.92 | $9.24 | $5.70 |
| Less distributions declared to shareholders | | | | | |
| From net realized gain | $— | $(2.22) | $(1.78) | $— | $(2.23) |
| Net asset value, end of period (x) | $28.01 | $18.21 | $31.29 | $29.15 | $19.91 |
| Total return (%) (k)(r)(s)(x) | 53.82 | (35.85) | 13.43 | 46.41 | 35.88 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.11 | 1.15 | 1.13 | 1.19 | 1.22 |
| Expenses after expense reductions | 1.09 | 1.13 | 1.12 | 1.18 | 1.21 |
| Net investment income (loss) | (0.43) | (0.62) | (0.87) | (0.81) | (0.69) |
| Portfolio turnover | 43 | 28 | 44 | 57 | 33 |
| Net assets at end of period (000 omitted) | $112,852 | $80,955 | $105,624 | $75,544 | $48,811 |
| Supplemental Ratios (%): | | | | | |
| Ratios of expenses to average net assets after expense reductions and excluding interest expense and fees | N/A | N/A | 1.11 | 1.16 | 1.18 |
| (d) | Per share data is based on average shares outstanding. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
Notes to Financial Statements
(1) Business and Organization
MFS Technology Portfolio (the fund) is a non-diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests primarily in securities of issuers in the technology industry. Issuers in a single industry can react similarly to market, currency, political, economic, regulatory, geopolitical, environmental, public health, and other conditions. The value of stocks in the technology sector can be very volatile due to the rapid pace of product change, technological developments, and other factors.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. For put options, the position may be valued at the last daily ask quotation if there are no trades reported during the day. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Open-end investment companies are generally valued at net asset value per share. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or
Notes to Financial Statements - continued
market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2023 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| United States | $125,743,846 | $— | $— | $125,743,846 |
| Canada | 6,673,006 | 0 | — | 6,673,006 |
| Japan | 2,748,064 | — | — | 2,748,064 |
| Israel | 859,122 | — | — | 859,122 |
| Taiwan | 714,912 | — | — | 714,912 |
| Netherlands | 365,592 | — | — | 365,592 |
| Mutual Funds | 559,020 | — | — | 559,020 |
| Total | $137,663,562 | $0 | $— | $137,663,562 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives — The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were purchased options. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period. At December 31, 2023, the fund did not have any outstanding derivative instruments.
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended December 31, 2023 as reported in the Statement of Operations:
Notes to Financial Statements - continued
| Risk | Unaffiliated Issuers
(Purchased
Options) |
| Equity | $(386,359) |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended December 31, 2023 as reported in the Statement of Operations:
| Risk | Unaffiliated Issuers
(Purchased
Options) |
| Equity | $(107,469) |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a credit support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
Purchased Options — The fund purchased put options for a premium. Purchased put options entitle the holder to sell a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing put options may hedge against an anticipated decline in the value of portfolio securities or currency or decrease the fund's exposure to an underlying instrument.
The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased put options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased put option, the premium paid is offset against the proceeds on the sale of the underlying security or financial instrument in order to determine the realized gain or loss on investments.
Whether or not the option is exercised, the fund's maximum risk of loss from purchasing an option is the amount of premium paid. All option contracts involve credit risk if the counterparty to the option contract fails to perform. For uncleared options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On
Notes to Financial Statements - continued
loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income. At December 31, 2023, there were no securities on loan or collateral outstanding.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Investment transactions are recorded on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to net operating losses, wash sale loss deferrals, and straddle loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/23 | Year ended
12/31/22 |
| Ordinary income (including any short-term capital gains) | $— | $1,464,022 |
| Long-term capital gains | — | 8,671,021 |
| Total distributions | $— | $10,135,043 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
Notes to Financial Statements - continued
| As of 12/31/23 | |
| Cost of investments | $83,405,505 |
| Gross appreciation | 55,172,476 |
| Gross depreciation | (914,419) |
| Net unrealized appreciation (depreciation) | $54,258,057 |
| Undistributed long-term capital gain | 1,717,966 |
| Other temporary differences | 55 |
| Total distributable earnings (loss) | $55,976,078 |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/23 | | Year
ended
12/31/22 |
| Initial Class | $— | | $1,788,007 |
| Service Class | — | | 8,347,036 |
| Total | $— | | $10,135,043 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.75% |
| In excess of $1 billion | 0.70% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this management fee reduction amounted to $15,167, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.74% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses (such as short sale dividend and interest expenses incurred in connection with the fund's investment activity), such that total annual operating expenses do not exceed 1.00% of average daily net assets for the Initial Class shares and 1.25% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, the fund's actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund's expenses related to this agreement.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these
Notes to Financial Statements - continued
participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares as well as shareholder servicing and account maintenance activities. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. The distribution and/or service fees are computed daily and paid monthly.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2023, the fee was $1,527, which equated to 0.0013% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2023, these costs amounted to $531.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is computed daily and paid monthly. The administrative services fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.0230% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
During the year ended December 31, 2023, pursuant to a policy adopted by the Board of Trustees and designed to comply with Rule 17a-7 under the Investment Company Act of 1940 (the “Act”) and relevant guidance, the fund engaged in sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) which amounted to $201,053. The sales transactions resulted in net realized gains (losses) of $(77,025).
The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the year ended December 31, 2023, this reimbursement amounted to $1,661, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the year ended December 31, 2023, purchases and sales of investments, other than purchased options with an expiration date of less than one year from the time of purchase and short-term obligations, aggregated $50,017,899 and $57,768,575, respectively.
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 144,210 | $3,817,661 | | 73,436 | $1,814,506 |
| Service Class | 609,317 | 13,940,529 | | 1,383,790 | 31,721,430 |
| | 753,527 | $17,758,190 | | 1,457,226 | $33,535,936 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | — | $— | | 76,021 | $1,788,007 |
| Service Class | — | — | | 384,302 | 8,347,036 |
| | — | $— | | 460,323 | $10,135,043 |
| Shares reacquired | | | | | |
| Initial Class | (199,443) | $(5,075,351) | | (138,410) | $(3,580,611) |
| Service Class | (1,026,518) | (23,922,534) | | (697,883) | (16,348,324) |
| | (1,225,961) | $(28,997,885) | | (836,293) | $(19,928,935) |
Notes to Financial Statements - continued
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| | Shares | Amount | | Shares | Amount |
| Net change | | | | | |
| Initial Class | (55,233) | $(1,257,690) | | 11,047 | $21,902 |
| Service Class | (417,201) | (9,982,005) | | 1,070,209 | 23,720,142 |
| | (472,434) | $(11,239,695) | | 1,081,256 | $23,742,044 |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 14, 2024 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2023, the fund’s commitment fee and interest expense were $510 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $4,212,811 | $18,517,234 | $22,169,715 | $17 | $(1,327) | $559,020 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $164,985 | $— |
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Technology Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Technology Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 2024
We have served as the auditor of one or more of the MFS investment companies since 1924.
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2024, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 57) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 69) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 72) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 69) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 68) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 68) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 62) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 67) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 67) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 66) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 55) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
John W. Clark, Jr. (k)
(age 56) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 55) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 56) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 47) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022) |
Amanda S. Mooradian (k)
(age 44) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 53) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 53) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
James O. Yost (k)
(age 63) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Caroselli, Jones and Otis are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
Trustees and Officers - continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Congress Street, Suite 1
Boston, MA 02114-2016 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
| Reinier Dobbelmann | |
Board Review of Investment Advisory Agreement
MFS Technology Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2023 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2022 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2022, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 4th quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 2nd quintile for the one-year period and the 4th quintile for the three-year period ended December 31, 2022 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
The Trustees expressed concern to MFS about the substandard investment performance of the Fund and the Fund’s retail counterpart, MFS Technology Fund, which has substantially similar investment strategies and experienced substantially similar investment performance as the Fund. In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year as to MFS’ efforts to improve the performance of the Fund and the Fund’s
Board Review of Investment Advisory Agreement - continued
retail counterpart. In addition, the Trustees requested that they receive a separate update on the Fund’s retail counterpart at each of their regular meetings. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that MFS’ responses and efforts and plans to improve investment performance were sufficient to support approval of the continuance of the investment advisory agreement for an additional one-year period, but that they would continue to closely monitor the performance of the Fund’s retail counterpart.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each approximately at the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Board Review of Investment Advisory Agreement - continued
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2023.
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2023
MFS® U.S. Government
Money Market Portfolio
MFS® Variable Insurance Trust II
MFS® U.S. Government Money Market Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS U.S. Government Money Market Portfolio
Portfolio structure (u)
Composition including fixed income credit quality (a)(u)
| A-1+ | 56.1% |
| A-1 | 43.2% |
| Other Assets Less Liabilities | 0.7% |
Maturity breakdown (u)
| 0 - 7 days | 38.9% |
| 8 - 29 days | 27.5% |
| 30 - 59 days | 23.4% |
| 60 - 89 days | 2.5% |
| 90 - 365 days | 7.0% |
| Other Assets Less Liabilities | 0.7% |
| (a) | Ratings are assigned to portfolio securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P scale. All ratings are subject to change. The fund did not hold unrated securities. The fund is not rated by these agencies. |
| (u) | For purposes of this presentation, accrued interest, where applicable, is included. |
Percentages are based on net assets as of December 31, 2023.
The portfolio is actively managed and current holdings may be different.
MFS U.S. Government Money Market Portfolio
Performance Summary Through 12/31/23
Total returns as well as the current 7-day yield have been provided for the applicable time periods. Performance results reflect the percentage change in net asset value, including the reinvestment of any dividends and capital gains distributions. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. You could lose money by investing in the portfolio. Although the portfolio seeks to preserve the value of your investment at $1.00 per unit, it cannot guarantee it will do so. An investment in the portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. The portfolio’s sponsor has no legal obligation to provide financial support to the portfolio, and you should not expect the sponsor will provide financial support to the portfolio at any time. The performance shown does not reflect the deduction of taxes, if any, that a contract holder would pay on portfolio distributions or the redemption of contract units. The returns for the portfolio shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
| Share Class | Inception | 1-Year Total Return | Current 7-day yield |
| Initial Class | 7/19/1985 | 4.58% | 4.94% |
| Service Class | 8/24/2001 | 4.58% | 4.94% |
Notes to Performance Summary
Yields quoted are based on the latest seven days ended as of December 31, 2023, with dividends annualized. The yield quotations more closely reflect the current earnings of the portfolio than the total return quotations.
Performance results reflect any applicable expense subsidies, waivers and adjustments in effect during the periods shown. Without such subsidies and waivers the portfolio's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gain distributions.
MFS U.S. Government Money Market Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2023 through December 31, 2023
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2023 through December 31, 2023.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/23 | Ending
Account Value
12/31/23 | Expenses
Paid During
Period (p)
7/01/23-12/31/23 |
| Initial Class | Actual | 0.43% | $1,000.00 | $1,024.85 | $2.19 |
| Hypothetical (h) | 0.43% | $1,000.00 | $1,023.04 | $2.19 |
| Service Class | Actual | 0.43% | $1,000.00 | $1,024.85 | $2.19 |
| Hypothetical (h) | 0.43% | $1,000.00 | $1,023.04 | $2.19 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS U.S. Government Money Market Portfolio
Portfolio of Investments − 12/31/23
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| U.S. Government Agencies and Equivalents (y) – 78.4% |
| Fannie Mae, 5.313%, due 1/02/2024 | | $12,500,000 | $ 12,498,181 |
| Fannie Mae, 5.287%, due 2/20/2024 | | 12,100,000 | 12,012,359 |
| Federal Farm Credit Bank, 5.313%, due 1/17/2024 | | 8,800,000 | 8,779,506 |
| Federal Farm Credit Bank, 5.161%, due 6/06/2024 | | 8,300,000 | 8,115,756 |
| Federal Home Loan Bank, 5.333%, due 1/17/2024 | | 11,000,000 | 10,974,285 |
| Federal Home Loan Bank, 5.338%, due 1/22/2024 | | 16,600,000 | 16,549,017 |
| Freddie Mac, 5.308%, due 1/03/2024 | | 23,000,000 | 22,993,311 |
| U.S. Treasury Bill, 5.343%, due 1/02/2024 | | 15,000,000 | 14,997,804 |
| U.S. Treasury Bill, 5.346%, due 1/16/2024 | | 19,200,000 | 19,157,820 |
| U.S. Treasury Bill, 5.349%, due 1/23/2024 | | 21,800,000 | 21,729,712 |
| U.S. Treasury Bill, 5.33%, due 2/01/2024 | | 13,100,000 | 13,040,698 |
| U.S. Treasury Bill, 5.333%, due 2/01/2024 | | 13,100,000 | 13,040,664 |
| U.S. Treasury Bill, 5.318%, due 2/15/2024 | | 14,000,000 | 13,908,204 |
| U.S. Treasury Bill, 5.284%, due 2/22/2024 | | 13,700,000 | 13,596,870 |
| U.S. Treasury Bill, 5.268%, due 3/12/2024 | | 7,000,000 | 6,928,273 |
| U.S. Treasury Bill, 5.148%, due 6/13/2024 | | 11,700,000 | 11,429,369 |
| Total U.S. Government Agencies and Equivalents, at Amortized Cost and Value | | | $219,751,829 |
| Repurchase Agreements – 20.9% | |
| BofA Securities, Inc. Repurchase Agreement, 5.29%, dated 12/29/2023, due 1/02/2024, total to be received $29,312,219 (secured by U.S. Treasury and/or U.S. Government Agency Securities valued at $29,881,170) | | $29,295,000 | $ 29,295,000 |
| Fixed Income Clearing Corp-State Street Bank & Trust Co. Repurchase Agreement, 5.31%, dated 12/29/2023, due 1/02/2024, total to be received $29,312,481 (secured by U.S. Treasury and/or U.S. Government Agency Securities valued at $29,881,197) | | 29,295,197 | 29,295,197 |
| Total Repurchase Agreements, at Cost and Value | | | | $58,590,197 |
| Other Assets, Less Liabilities – 0.7% | | | 1,950,682 |
| Net Assets – 100.0% | | | $280,292,708 |
| (y) | The rate shown represents an annualized yield at time of purchase. |
See Notes to Financial Statements
MFS U.S. Government Money Market Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/23Assets | |
| Investments in unaffiliated issuers, at cost and value | $219,751,829 |
| Investments in unaffiliated repurchase agreements, at cost and value | 58,590,197 |
| Receivables for | |
| Fund shares sold | 2,010,010 |
| Interest | 25,877 |
| Other assets | 1,921 |
| Total assets | $280,379,834 |
| Liabilities | |
| Payables for | |
| Distributions | $36 |
| Fund shares reacquired | 34,150 |
| Payable to affiliates | |
| Investment adviser | 11,759 |
| Administrative services fee | 492 |
| Shareholder servicing costs | 6 |
| Payable for audit and tax fees | 17,766 |
| Payable for shareholder communications | 9,249 |
| Accrued expenses and other liabilities | 13,668 |
| Total liabilities | $87,126 |
| Net assets | $280,292,708 |
| Net assets consist of | |
| Paid-in capital | $280,292,708 |
| Net assets | $280,292,708 |
| Shares of beneficial interest outstanding | 280,482,827 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $175,407,912 | 175,527,028 | $1.00 |
| Service Class | 104,884,796 | 104,955,799 | 1.00 |
See Notes to Financial Statements
MFS U.S. Government Money Market Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/23 | |
| Net investment income (loss) | |
| Income | |
| Interest | $13,287,763 |
| Other | 107 |
| Total investment income | $13,287,870 |
| Expenses | |
| Management fee | $1,075,751 |
| Distribution and/or service fees | 256,612 |
| Shareholder servicing costs | 1,424 |
| Administrative services fee | 49,058 |
| Independent Trustees' compensation | 7,116 |
| Custodian fee | 9,898 |
| Audit and tax fees | 34,479 |
| Legal fees | 3,280 |
| Miscellaneous | 25,122 |
| Total expenses | $1,462,740 |
| Reduction of expenses by investment adviser and distributor | (291,002) |
| Net expenses | $1,171,738 |
| Net investment income (loss) | $12,116,132 |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $4,412 |
| Change in net assets from operations | $12,120,544 |
See Notes to Financial Statements
MFS U.S. Government Money Market Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/23 | 12/31/22 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $12,116,132 | $2,984,320 |
| Net realized gain (loss) | 4,412 | 0 |
| Change in net assets from operations | $12,120,544 | $2,984,320 |
| Total distributions to shareholders | $(12,116,132) | $(2,984,320) |
| Change in net assets from fund share transactions | $20,672,163 | $4,603,128 |
| Total change in net assets | $20,676,575 | $4,603,128 |
| Net assets | | |
| At beginning of period | 259,616,133 | 255,013,005 |
| At end of period | $280,292,708 | $259,616,133 |
See Notes to Financial Statements
MFS U.S. Government Money Market Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.05 | $0.01 | $0.00 | $0.00(w) | $0.02 |
| Net realized and unrealized gain (loss) | (0.01)(g) | 0.00 | 0.00(w) | 0.00(w) | 0.00(w) |
| Total from investment operations | $0.04 | $0.01 | $0.00(w) | $0.00(w) | $0.02 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.04) | $(0.01) | $— | $(0.00)(w) | $(0.02) |
| Net asset value, end of period | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 |
| Total return (%) (k)(r) | 4.58 | 1.17 | 0.00 | 0.22 | 1.63 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.45 | 0.46 | 0.46 | 0.52 | 0.56 |
| Expenses after expense reductions | 0.44 | 0.33 | 0.04 | 0.24 | 0.55 |
| Net investment income (loss) | 4.50 | 1.17 | 0.00 | 0.20 | 1.63 |
| Net assets at end of period (000 omitted) | $175,408 | $159,395 | $149,896 | $155,937 | $149,689 |
| Service Class | Year ended |
| | 12/31/23 | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 |
| Net asset value, beginning of period | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.05 | $0.01 | $0.00 | $0.00(w) | $0.02 |
| Net realized and unrealized gain (loss) | (0.01)(g) | 0.00 | 0.00(w) | 0.00(w) | 0.00(w) |
| Total from investment operations | $0.04 | $0.01 | $0.00(w) | $0.00(w) | $0.02 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.04) | $(0.01) | $— | $(0.00)(w) | $(0.02) |
| Net asset value, end of period | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 |
| Total return (%) (k)(r) | 4.58 | 1.17 | 0.00 | 0.22 | 1.63 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.70 | 0.71 | 0.71 | 0.77 | 0.81 |
| Expenses after expense reductions | 0.44 | 0.33 | 0.04 | 0.25 | 0.55 |
| Net investment income (loss) | 4.51 | 1.15 | 0.00 | 0.21 | 1.64 |
| Net assets at end of period (000 omitted) | $104,885 | $100,221 | $105,117 | $114,985 | $114,543 |
| (d) | Per share data is based on average shares outstanding. |
| (g) | The per share amount varies from the net realized and unrealized gain/loss for the period because of the timing of sales of fund shares and the per share amount of realized and unrealized gains and losses at such time. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (w) | Per share amount was less than $0.01. |
See Notes to Financial Statements
MFS U.S. Government Money Market Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS U.S. Government Money Market Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund’s Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund’s adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policies and procedures, market quotations are not considered to be readily available for debt instruments. Debt instruments held by the fund are generally valued at amortized cost, which approximates market value. Amortized cost involves valuing an instrument at its cost as adjusted for amortization of premium or accretion of discount rather than its current market value. The amortized cost value of an instrument can be different from the market value of an instrument.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2023 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Short-Term Securities | $— | $278,342,026 | $— | $278,342,026 |
For further information regarding security characteristics, see the Portfolio of Investments.
Repurchase Agreements — The fund enters into bilateral repurchase agreements under the terms of Master Repurchase Agreements with approved counterparties, some of which may be novated to the clearing agency, Fixed Income Clearing Corporation (FICC). Each repurchase agreement is recorded at cost. For both bilateral and cleared repurchase agreements, the fund requires that the securities collateral in a repurchase transaction be transferred to a custodian. On a daily basis, the fund monitors the collateral to ensure that its value, including accrued interest, is greater than amounts owed to the fund under each such repurchase agreement. In the event of default, the settlement of a cleared repurchase agreement is guaranteed by FICC. Upon an event of
MFS U.S. Government Money Market Portfolio
Notes to Financial Statements - continued
default on a bilateral repurchase agreement, the non-defaulting party may close out all transactions traded under a Master Repurchase Agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the Master Repurchase Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. At December 31, 2023, the fund had investments in repurchase agreements with a gross value of $58,590,197 in the Statement of Assets and Liabilities. The value of the related collateral exceeded the value of the repurchase agreements at period end.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles.
Investment transactions are recorded on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
During the year ended December 31, 2023, there were no significant adjustments due to differences between book and tax accounting.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/23 | Year ended
12/31/22 |
| Ordinary income (including any short-term capital gains) | $12,116,132 | $2,984,320 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/23 | |
| Cost of investments | $278,342,026 |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income and common expenses are allocated to shareholders based on the value of settled shares outstanding of each class. The fund's realized and unrealized gain (loss) are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| Initial Class | $7,491,202 | | $1,825,805 |
| Service Class | 4,624,930 | | 1,158,515 |
| Total | $12,116,132 | | $2,984,320 |
MFS U.S. Government Money Market Portfolio
Notes to Financial Statements - continued
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.40% |
| In excess of $1 billion | 0.35% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this management fee reduction amounted to $34,390, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.39% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.45% of average daily net assets for each of the Initial Class and Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares as well as shareholder servicing and account maintenance activities. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. The distribution and/or service fees are computed daily and paid monthly. MFD has agreed in writing to waive the entire 0.25% distribution and/or service fee. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2025. For the year ended December 31, 2023, this waiver amounted to $256,612, which is included in the reduction of total expenses in the Statement of Operations. The distribution and/or service fees incurred for the year ended December 31, 2023 were equivalent to an annual effective rate of 0.00% of the average daily net assets attributable to Service Class shares.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2023, the fee was $1,055, which equated to 0.0004% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2023, these costs amounted to $369.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is computed daily and paid monthly. The administrative services fee incurred for the year ended December 31, 2023 was equivalent to an annual effective rate of 0.0182% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
MFS U.S. Government Money Market Portfolio
Notes to Financial Statements - continued
(4) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. The number of shares sold, reinvested and reacquired corresponds to the net proceeds from the sale of shares, reinvestment of distributions and cost of shares reacquired, respectively, since shares are sold and reacquired at $1.00 per share. Transactions in fund shares were as follows:
| | Year ended
12/31/23 | | Year ended
12/31/22 |
| Shares sold | | | |
| Initial Class | 39,272,729 | | 38,073,538 |
| Service Class | 29,732,937 | | 27,134,670 |
| | 69,005,666 | | 65,208,208 |
Shares issued to shareholders in
reinvestment of distributions | | | |
| Initial Class | 7,491,202 | | 1,825,805 |
| Service Class | 4,624,930 | | 1,158,515 |
| | 12,116,132 | | 2,984,320 |
| Shares reacquired | | | |
| Initial Class | (30,751,186) | | (30,394,757) |
| Service Class | (29,698,449) | | (33,194,643) |
| | (60,449,635) | | (63,589,400) |
| Net change | | | |
| Initial Class | 16,012,745 | | 9,504,586 |
| Service Class | 4,659,418 | | (4,901,458) |
| | 20,672,163 | | 4,603,128 |
(5) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 14, 2024 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2023, the fund’s commitment fee and interest expense were $1,304 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
MFS U.S. Government Money Market Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of
MFS U.S. Government Money Market Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS U.S. Government Money Market Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 2024
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS U.S. Government Money Market Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2024, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 57) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 69) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 72) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 69) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 68) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 68) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 62) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 67) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 67) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 66) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 55) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
MFS U.S. Government Money Market Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
John W. Clark, Jr. (k)
(age 56) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 55) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 56) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 47) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022) |
Amanda S. Mooradian (k)
(age 44) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 53) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 53) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
James O. Yost (k)
(age 63) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Caroselli, Jones and Otis are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
MFS U.S. Government Money Market Portfolio
Trustees and Officers - continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Congress Street, Suite 1
Boston, MA 02114-2016 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
MFS U.S. Government Money Market Portfolio
Board Review of Investment Advisory Agreement
MFS U.S. Government Money Market Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2023 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2022 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2022, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 4th quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 4th quintile for each of the one- and three-year periods ended December 31, 2022 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. In addition, the Trustees noted the market conditions affecting all money market funds, in particular the low interest rate environment during portions of the one-, three- and five-year periods, and MFS’ voluntary
MFS U.S. Government Money Market Portfolio
Board Review of Investment Advisory Agreement - continued
waiver of all or a portion of its fees to ensure that the Fund avoided a negative yield during certain periods. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each higher than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2023.
MFS U.S. Government Money Market Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Portfolio Holdings Information
The fund files monthly portfolio information with the SEC on Form N-MFP. The fund’s Form N-MFP reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can also access the fund’s portfolio holdings as of each month end and the fund’s Form N-MFP reports at mfs.com/vit2 after choosing “Click here for access to Money Market fund reports”.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Item 1(b):
Not applicable.
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics (the "Code") pursuant to Section 406 of the Sarbanes-Oxley Act and as defined in Form N-CSR that applies to the Registrant's principal executive officer and principal financial and accounting officer. During the period covered by this report, the Registrant has not amended any provision in the Code that relates to an element of the Code's definition enumerated in paragraph
(b)of Item 2 of this Form N-CSR. During the period covered by this report, the Registrant did not grant a waiver, including an implicit waiver, from any provision of the Code.
A copy of the Code is attached hereto as EX-99.COE.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Messrs. Steven E. Buller and Clarence Otis, Jr., members of the Audit Committee, have been determined by the Board of Trustees in their reasonable business judgment to meet the definition of "audit committee financial expert" as such term is defined in Form N-CSR. In addition, Messrs. Buller and Otis are "independent" members of the Audit Committee (as such term has been defined by the Securities and Exchange Commission in regulations implementing Section 407 of the Sarbanes-Oxley Act of 2002). The Securities and Exchange Commission has stated that the designation of a person as an audit committee financial expert pursuant to this Item 3 on the Form N-CSR does not impose on such a person any duties, obligations or liability that are greater than the duties, obligations or liability imposed on such person as a member of the Audit Committee and the Board of Trustees in the absence of such designation or identification.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Items 4(a) through 4(d) and 4(g):
The Board of Trustees has appointed Deloitte & Touche LLP ("Deloitte") to serve as independent accountants to the Registrant (hereinafter the "Registrant" or the "Fund"). The tables below set forth the audit fees billed to the Fund as well as fees for non-audit services provided to the Fund and/or to the Fund's investment adviser, Massachusetts Financial Services Company ("MFS"), and to various entities either controlling, controlled by, or under common control with MFS that provide ongoing services to the Fund ("MFS Related Entities").
For the fiscal years ended December 31, 2023 and 2022, audit fees billed to the Fund by Deloitte were as follows:
Fees billed by Deloitte: | | Audit Fees |
| 2023 | | 2022 |
MFS Blended Research Core Equity Portfolio | 54,076 | | 49,857 |
MFS Core Equity Portfolio | 56,617 | | 52,205 |
MFS Corporate Bond Portfolio | 72,815 | | 72,815 |
MFS Emerging Markets Equity Portfolio | 56,975 | | 52,536 |
MFS Global Governments Portfolio | 70,232 | | 70,232 |
MFS Global Growth Portfolio | 69,521 | | 64,131 |
MFS Global Research Portfolio | 55,168 | | 50,866 |
MFS Global Tactical Allocation Portfolio | 76,168 | | 70,274 |
MFS Government Securities Portfolio | 64,736 | | 59,709 |
MFS High Yield Portfolio | 83,993 | | 77,506 |
MFS Income Portfolio | 77,204 | | 77,204 |
MFS International Growth Portfolio | 56,975 | | 52,536 |
MFS International Intrinsic Value Portfolio | 58,063 | | 53,541 |
MFS Massachusetts Investors Growth Stock Portfolio | 56,491 | | 52,089 |
MFS Research International Portfolio | 54,076 | | 49,857 |
MFS Technology Portfolio | 54,202 | | 49,973 |
MFS U.S. Government Money Market Portfolio | 33,524 | | 30,862 |
Total | 1,050,836 | | 986,193 |
For the fiscal years ended December 31, 2023 and 2022, fees billed by Deloitte for audit-related, tax and other services provided to each Fund and for audit-related, tax and other services provided to MFS and MFS Related Entities were as follows:
Fees billed by Deloitte: | Audit-Related Fees1 | Tax Fees2 | All Other Fees3 |
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 |
| | | | | | |
To MFS Blended Research | 2,400 | 2,400 | 0 | 0 | 0 | 0 |
Core Equity Portfolio | | | | | | |
To MFS Core Equity Portfolio | 2,400 | 2,400 | 0 | 0 | 0 | 0 |
| | | | | | |
To MFS Corporate Bond | 2,400 | 2,400 | 0 | 0 | 0 | 0 |
Portfolio | | | | | | |
To MFS Emerging Markets | 2,400 | 2,400 | 0 | 0 | 0 | 0 |
Equity Portfolio | | | | | | |
To MFS Global Governments | 2,400 | 2,400 | 0 | 0 | 0 | 0 |
Portfolio | | | | | | |
To MFS Global Growth | 2,400 | 2,400 | 0 | 0 | 0 | 0 |
Portfolio | | | | | | |
To MFS Global Research | 2,400 | 2,400 | 0 | 0 | 0 | 0 |
Portfolio | | | | | | |
To MFS Global Tactical | 2,400 | 2,400 | 0 | 0 | 0 | 0 |
Allocation Portfolio | | | | | | |
To MFS Government Securities | 2,400 | 2,400 | 0 | 0 | 0 | 0 |
Portfolio | | | | | | |
To MFS High Yield Portfolio | 2,400 | 2,400 | 0 | 0 | 0 | 0 |
| | | | | | |
To MFS Income Portfolio | 2,400 | 2,400 | 0 | 0 | 0 | 0 |
| | | | | | |
To MFS International Growth | 2,400 | 2,400 | 0 | 0 | 0 | 0 |
Portfolio | | | | | | |
To MFS International Intrinsic | 2,400 | | 2,400 | 0 | | 0 | 0 | 0 |
Value Portfolio | | | | | | | | |
To MFS Massachusetts | 2,400 | | 2,400 | 0 | | 0 | 0 | 0 |
Investors Growth Stock | | | | | | | | |
Portfolio | | | | | | | | |
To MFS Research International | 2,400 | | 2,400 | 0 | | 0 | 0 | 0 |
Portfolio | | | | | | | | |
To MFS Technology Portfolio | 2,400 | | 2,400 | 0 | | 0 | 0 | 0 |
| | | | | | | | |
To MFS U.S. Government Money | 2,400 | | 2,400 | 0 | | 0 | 0 | 0 |
Market Portfolio | | | | | | | | |
Total fees billed by Deloitte | | | | | | | | |
To above Funds: | 40,800 | | 40,800 | 0 | | 0 | 0 | 0 |
| | | | | |
Fees billed by Deloitte: | Audit-Related Fees1 | Tax Fees2 | All Other Fees3 |
| 2023 | | 2022 | 2023 | | 2022 | 2023 | 2022 |
| | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 0 | 3,790 |
Entities of MFS Blended | | | | | | | | |
Research Core Equity Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 0 | 3,790 |
Entities of MFS Core Equity | | | | | | | | |
Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 0 | 3,790 |
Entities of MFS Corporate Bond | | | | | | | | |
Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 0 | 3,790 |
Entities of MFS Emerging | | | | | | | | |
Markets Equity Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 0 | 3,790 |
Entities of MFS Global | | | | | | | | |
Governments Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 0 | 3,790 |
Entities of MFS Global | | | | | | | | |
Growth Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 0 | 3,790 |
Entities of MFS Global | | | | | | | | |
Research Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 0 | 3,790 |
Entities of MFS Global Tactical | | | | | | | | |
Allocation Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 0 | 3,790 |
Entities of MFS Government | | | | | | | | |
Securities Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 0 | 3,790 |
Entities of MFS High | | | | | | | | |
Yield Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 0 | 3,790 |
Entities of MFS Income | | | | | | | | |
Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 0 | 3,790 |
Entities of MFS International | | | | | | | | |
Growth Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 0 | 3,790 |
Entities of MFS International | | | | | | | | |
Intrinsic Value Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 0 | 3,790 |
Entities of MFS Massachusetts | | | | | | | | |
Investors Growth Stock | | | | | | | | |
Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | 0 | | 0 | | 0 | 0 | | 3,790 |
Entities of MFS Research | | | | | | | | | | |
International Portfolio* | | | | | | | | | | |
To MFS and MFS Related | 0 | 0 | | 0 | | 0 | 0 | | 3,790 |
Entities of MFS Technology | | | | | | | | | | |
Portfolio* | | | | | | | | | | |
To MFS and MFS Related | 0 | 0 | | 0 | | 0 | 0 | | 3,790 |
Entities of MFS U.S. Government | | | | | | | | | | |
Money Market Portfolio * | | | | | | | | | | |
| | | | | | |
Fees billed by Deloitte: | | | | | Aggregate fees for non-audit services |
| | | | | 2023 | | | 2022 |
To MFS Blended Research Core Equity Portfolio, MFS and MFS | | 2,400 | | | 6,190 |
Related Entities# | | | | | | | | | | |
To MFS Core Equity Portfolio, MFS and MFS Related Entities# | | 2,400 | | | 6,190 |
To MFS Corporate Bond Portfolio, MFS and MFS Related | | 2,400 | | | 6,190 |
Entities# | | | | | | | | | | |
To MFS Emerging Markets Equity Portfolio, MFS and MFS | | 2,400 | | | 6,190 |
Related Entities# | | | | | | | | | | |
To MFS Global Governments Portfolio, MFS and MFS Related | | 2,400 | | | 6,190 |
Entities# | | | | | | | | | | |
To MFS Global Growth Portfolio MFS and MFS Related Entities# | | 2,400 | | | 6,190 |
To MFS Global Research Portfolio, MFS and MFS Related | | 2,400 | | | 6,190 |
Entities# | | | | | | | | | | |
To MFS Global Tactical Allocation Portfolio, MFS and MFS | | 2,400 | | | 6,190 |
Related Entities# | | | | | | | | | | |
To MFS Government Securities Portfolio, MFS and MFS Related | | 2,400 | | | 6,190 |
Entities# | | | | | | | | | | |
To MFS High Yield Portfolio, MFS and MFS Related Entities# | | 2,400 | | | 6,190 |
To MFS Income Portfolio, MFS and MFS Related Entities# | | 2,400 | | | 6,190 |
To MFS International Growth Portfolio, MFS and MFS Related | | 2,400 | | | 6,190 |
Entities# | | | | | | | | | | |
To MFS International Intrinsic Value Portfolio, MFS and MFS | | 2,400 | | | 6,190 |
Related Entities# | | | | | | | | | | |
To MFS Massachusetts Investors Growth Stock Portfolio, MFS | | 2,400 | | | 6,190 |
and MFS Related Entities# | | | | | | | | | | |
To MFS Research International Portfolio, MFS and MFS Related | | 2,400 | | | 6,190 |
Entities# | | | | | | | | | | |
To MFS Technology Portfolio, MFS and MFS Related Entities# | | 2,400 | | | 6,190 |
To MFS U.S. Government Money Market Portfolio, MFS and | | 2,400 | | | 6,190 |
MFS Related Entities# | | | | | | | | | | |
*This amount reflects the fees billed to MFS and MFS Related Entities for non-audit services relating directly to the operations and financial reporting of the Fund (portions of which services also related to the operations and financial reporting of other funds within the MFS Funds complex).
# This amount reflects the aggregate fees billed by Deloitte for non-audit services rendered to the Fund and for non-audit services rendered to MFS and the MFS Related Entities.
1 The fees included under "Audit-Related Fees" are fees related to assurance and related services that are reasonably related to the performance of the audit or review of financial statements, but not reported under ''Audit Fees,'' including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters and internal control reviews.
2 The fees included under "Tax Fees" are fees associated with tax compliance, tax advice and tax planning, including services relating to the filing or amendment of federal, state or local income tax returns, regulated investment company qualification reviews and tax distribution and analysis.
3 The fees included under "All Other Fees" are fees for products and services provided by Deloitte other than those reported under "Audit Fees," "Audit-Related Fees" and "Tax Fees".
Item 4(e)(1):
Set forth below are the policies and procedures established by the Audit Committee of the Board of Trustees relating to the pre- approval of audit and non-audit related services:
To the extent required by applicable law, pre-approval by the Audit Committee of the Board is needed for all audit and permissible non-audit services rendered to the Fund and all permissible non-audit services rendered to MFS or MFS Related Entities if the services relate directly to the operations and financial reporting of the Registrant. Pre-approval is currently on an engagement-by-engagement basis. In the event pre-approval of such services is necessary between regular meetings of the Audit Committee and it is not practical to wait to seek pre-approval at the next regular meeting of the Audit Committee, pre-approval of such services may be referred to the Chair of the Audit Committee for approval; provided that the Chair may not pre-approve any individual engagement for such services exceeding $50,000 or multiple engagements for such services in the aggregate exceeding $100,000 between such regular meetings of the Audit Committee. Any engagement pre-approved by the Chair between regular meetings of the Audit Committee shall be presented for ratification by the entire Audit Committee at its next regularly scheduled meeting.
Item 4(e)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and All Other Fees paid by the Fund and MFS and MFS Related Entities relating directly to the operations and financial reporting of the Registrant disclosed above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C) of Rule 2-01 of Regulation S-X (which permits audit committee approval after the start of the engagement with respect to services other than audit, review or attest services, if certain conditions are satisfied).
Item 4(f):
Not applicable.
Item 4(h):
The Registrant's Audit Committee has considered whether the provision by a Registrant's independent registered public accounting firm of non-audit services to MFS and MFS Related Entities that were not pre-approved by the Committee (because such services were provided prior to the effectiveness of SEC rules requiring pre-approval or because such services did not relate directly to the operations and financial reporting of the Registrant) was compatible with maintaining the independence of the independent registered public accounting firm as the Registrant's principal auditors.
Item 4(i):
Not applicable.
Item 4(j):
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. INVESTMENTS
A schedule of investments for each series covered by this Form N-CSR is included as part of the report to shareholders of such series under Item 1(a) of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrant's Board since the Registrant last provided disclosure as to such procedures in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a)Based upon their evaluation of the effectiveness of the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act")) as conducted within 90 days of the filing date of this report on Form N-CSR, the Registrant's principal financial officer and principal executive officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the Registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
(b)There were no changes in the Registrant's internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the period covered by the report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
ITEM 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 13. RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION.
Not Applicable.
ITEM 14. EXHIBITS.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Attached hereto as EX-99.COE.
(2)A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2): Attached hereto as EX-99.302CERT.
(3)Any written solicitation to purchase securities under Rule 23c-1 under the Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable.
(4)Change in the registrant's independent public accountant. Not applicable.
(b)If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed "filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. Attached hereto as EX-99.906CERT.
Notice
A copy of the Amended and Restated Declaration of Trust, as amended, of the Registrant is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually, but are binding only upon the assets and property of the respective constituent series of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS VARIABLE INSURANCE TRUST II
By (Signature and Title)*
/S/ DAVID L. DILORENZO
David L. DiLorenzo, President
Date: February 14, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)*
/S/ DAVID L. DILORENZO
David L. DiLorenzo, President (Principal Executive Officer)
Date: February 14, 2024
By (Signature and Title)*
/S/ JAMES O. YOST
James O. Yost, Treasurer (Principal Financial Officer and Accounting Officer) Date: February 14, 2024
* Print name and title of each signing officer under his or her signature.
